Increase Sales through Package Pricing

By John Aberle | Business Lifestyle

Jun 06

Bundled price

Selling a package is a standard sales and marketing tool.

I recently encountered a vendor who could not understand one of the basic concepts in sales and marketing: people love a bargain and are inclined to buy more if there is a special. I’m sure you are familiar with this idea as many successful marketers create package prices to encourage buyers to purchase more. Interestingly, I’m usually at the other end of the spectrum wondering if merchants understand the other basic of business, i.e. that you have to make a profit (or at least break even) to survive.

Not everyone accepts the value of selling a package of products

One of the easiest ways to increase sales is to offer bundled packages. Yet the management of this company refused to give customers a choice of buying several pictures at a reduced price once they’d bought the first one. It would appear that they wanted the full profit on each sale.

Here’s the problem that comes from holding the line on prices in this unique case:

  • They have a fixed number of prospects, only those attending this event.
  • Their labor costs are already spent – I call this sunk costs – because the photographers already took the pictures “on spec,” i.e. hoping to entice buyers to purchase them, and already printed them up so the customers could see them.
  • Their material costs to print up the pictures are also spent as the prospects wouldn’t purchase without seeing the pictures.
  • Their overhead was a fixed expense regardless of how many pictures they sold.

Here is the basic profit formula:

Selling Price

Less Cost of Goods Sold

–    Materials (photograph paper and chemical)
–    Production labor, unless paid on sales only (to shoot the pictures and to print them up)
–    Commissions

Gross Profit

Less Overhead or Fixed Expenses
Overhead or Fixed Expenses: rent, utilities, insurance, rent on the equipment to print the pictures and office staff wages, plus any other expenses that do not change with increase of decrease in sales

Net profit (technically net profit before interest and taxes)

In this case, the basic profit formula looks more like the following:

Selling Price

Less Cost of Goods Sold
–    Materials ONLY for additional prints
–    Production labor ONLY to print up additional prints of pictures already taken
–    Commissions

Gross Profit

Less Overhead or Fixed Expenses
–    Cost of goods sold — materials (photograph paper and chemical) of original prints
–    Cost of goods sold – labor, unless paid on sales only, on original prints (to shoot the pictures and to print them up)
–    Overhead or Fixed Expenses
Net profit (technically net profit before interest and taxes)
I redid this formula in this manner to emphasize that regardless of his sales figures, his material and production labor are spent. In reality they do vary, but from event to event, not based on sales. Because the vendor already printed up one print for all of the pictures, his costs are the same whether he sells two thousand prints or none.

To find the right price point will take additional work. Nevertheless, in this particular scenario and for any similar business, putting together a bundled package to encourage customers to buy more would have a significant impact on profits. As it is, any pictures not bought get trashed.

Pricing is a balancing act. You may want to involve someone who understands business finance, as opposed to tax accounting.

While sales people are inclined to discount too soon and too much, the other extreme is shown by this vendor who refuses to create photo bundles to encourage customers to buy more of the pictures already shot and printed up. Another package would be to offer much reduced pricing on reprints of the same picture.

Of the ways to increase sales, one of the easiest is through offering customers package pricing. It entices customers to get that little bit extra now while it’s at a lower price. Be careful though not to get so aggressive you undermine the value of your product or go in the hole. The idea is to also increase your profits.


About the Author

My first Kindle eBook, How Relationship Selling Rewards Small Businesses, went live on April 24, 2012. I've lived a lifetime of service and spiritual search so it's natural for me to incorporate these attitudes into my work. I believe that selling and marketing are spiritual service when done with a heart-centered, relationship selling approach. All of business success comes down to building strong relationships.