7 Pricing Riptides That Quickly Drown Profits

Over the past five years, 261 people have died in the United States because they swam against a riptide and drowned. By comparison, 58 people have died from shark attacks in the past 50 years in total.

Riptides are overlooked killers, but they’re also convenient. Surfers paddle out on riptides to catch the next big wave. Like the moving sidewalk at the airport, riptides take them to their destination faster. Yes, being caught in a riptide unknowingly can wear you out and cause you to drown. But if you know where they exist and how they affect you, you can use riptides to your advantage to get where you want to go.

In business, pricing riptides are just as powerful. Like riptides in the ocean, people unintentionally get caught fighting the current. Instead, like a surfer, you should paddle straight into them and plan your pricing strategies accordingly.

Here are the top seven pricing riptides and the best ways to navigate them:

Riptide #1: You cast too wide of a net and lose money in the process. 

Many businesses are so motivated to bring in the widest possible customer base that they end up pricing themselves to the lowest common denominator—for the most prospects and the greatest number of sales. But this often results in a poor monetization ratio.

In many of the companies I’ve worked with, doubling profit margins while increasing total revenue involved narrowing targeted customers and, in a few cases, firing existing customers altogether if they weren’t a match for the value the businesses created.

Now more than ever, having narrow, tailored offerings—“for someone like me” or “in my situation”—reaps outsized rewards. Find people who will pay more for your offering and double down on your efforts to reliably deliver it to them.

Riptide #2: You give too much away and undermine your value. 

New businesses and founding owners are often so eager to tell prospects what they offer, how it works, or what it will do that they unknowingly give away proprietary knowledge or undermine the perceived value that makes their offering attractive in the first place.

It’s akin to Coke being so happy to share the value of their sweet, refreshing drink that they tell people the recipe so they can appreciate the brilliance of it for themselves.

This can result in one of two undesirable situations: the prospect concludes they don’t like it before giving it a try, or they like it and buy in, but now they know what they need to make it themselves and start looking to source the ingredients elsewhere at a lower cost.

Riptide #3: What people say they value doesn’t match their buying decisions. 

No matter what people tell you they want and will pay for, only two metrics are reliable enough to use as a guide: time and money.

Is a person willing to spend time exploring your offering? Note that this is not time chatting with your salesperson or time spent drinking your alcohol at a conference happy hour. This is time focused on thinking through and envisioning how they’d use or apply your offering in day-to-day life. Is that same person willing to spend money to give your offering a try?

If you want to know what people will pay for, pay close attention to how they already spend their time and money. Buyers can readily recite a set of explicit justifications for their purchase decisions but rarely utter any implicit meaning that truly motivated them to buy or not.

Riptide #4: Prospects don’t care what you offer; they care about what it affords them. 

I often see business owners become dismayed by the criteria potential buyers use to judge their offerings. Buyers will always use a set of heuristics to judge what you offer. These are the everyday rules of thumb and mental shortcuts we use to make decisions. They’re not guaranteed to be optimal, perfect, or even rational. But they’re generally sufficient for reaching an immediate goal.

Fundamentally, people spend their time and resources on what they perceive will get them closer to a place they value more. As Harvard professor Theodore Levitt famously put it back in the 1960s, “People don’t want to buy a quarter-inch drill, they want a quarter-inch hole.”

Riptide #5: You focus on winning today without considering tomorrow. 

Businesses may develop a winning product today, but how will that product look tomorrow? To put this in human terms, everyone gets old, and some people try to fight aging. But when someone older than 65 wears skinny jeans, it usually doesn’t make them look younger. It does the opposite: it accentuates their age by highlighting the contrast.

With your offering, the goal is not to stop from growing old but to age gracefully. The moment a company celebrates the win of becoming a preferred vendor to a very large corporation is the same moment the countdown clock starts for their inevitable annual pricing haircut.

With the head start of knowing and accepting—not resisting—aging, you can invest in an offensive position to maintain or even improve your monetization ratio for that next stage of your product’s life cycle.

Riptide #6: You view price as a number, not a signal. 

Pricing has a dual role in business: it determines your revenue, and it signals your value. Businesses can use price to position their offerings within the market, signal the level of quality or value the offering delivers, and attract the right kind of customers.

For example, you may choose to price aggressively to deliver a dopamine hit to buyers who love to score a deal because they’ll share their big find with fellow members of their value-hunting tribe. In these cases, you can move a disproportional amount of inventory (or penetrate a market faster) than traditionally expected on your supply-and-demand curve simply by signaling “a good deal,” a la the Costco effect.

In contrast, a higher price may deter price-sensitive customers but attract those seeking premium products or services. But be forewarned: As the price increases, so does the expectation of quality as well as the disgust for missteps in failing to meet those expectations.

Riptide #7: Your pricing creates future expectations, but your future isn’t written yet. 

The pricing decisions you’ve already made create expectations in your customers’ minds about what they’ll pay in the future. This is especially true if you’ve been consistent in your pricing strategy over a long period of time. Any drastic changes in pricing may be met with resistance or even backlash from your customer base.

However, far more often, business leaders hold themselves hostage by this concern, even when the evidence shows otherwise. Or they assume they must give up their current customer base for one that’s willing to pay more. Too often, businesses are so afraid of negative pushback that they don’t test alternative pricing, and they leave money on the table.

In my experience, it’s always worth exploring one question: How do we truly know our customers won’t pay more?

Riding Your Riptides 

Many variables affect how people perceive your offering, and some can be optimized to improve your pricing power. But there are others you simply can’t control. Don’t get caught swimming against the current and wasting what could otherwise be time spent boosting profits.

Written by Adam Wallace.

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