June 9, 2026

The 10% Pricing Trap - Powerful Business Strategies

Show Notes
Transcript

It's the Positively Pipeman segment of The Adventures of Pipeman bringing you Powerful Business Strategies. Michael Barbarita of Next Step CFO discusses The 10% Pricing Trap – Most business owners panic and cut prices when sales slow down. But a 10% price cut typically requires a 40% or more increase in volume just to break even on gross profit dollars.

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Hi, you live Donto censure.

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Wow for you young.

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This is the pipe Man here on the Adventures Pipe

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Man W four c Y Radio. This is the positively

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pipemin segment with our powerful business strategies and we are

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back with our resident expert, Michael Barbarica from Next Step CFO,

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and we're going to talk today about the ten percent

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pricing trap.

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Uh oh, what's it? What's this trap all about?

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Michael trap? Well, well, first of all, thanks for having me, Dean.

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And the ten percent uh pricing trap is when people

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drop their price ten So I had a client who

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was adamant about dropping their because unfortunately, they're not selling

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the transformation. They're selling the transaction. And that's the trap

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that all business owners get get into when you when

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you're selling your product or service, you're going to sell

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the transformation that takes place and the value that you

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add to that transformation, not the transaction. Get them off

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the transaction, get them into the transformation. And so he

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wasn't doing that, of course, and so he's just focused

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on price and price competition. So I told him, and

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this is what happens with most business owners, and it

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depends upon your gross profit moguic. But in this particular case,

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I said, if you're going to drop your price ten

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percent like you're proposing, it's going to require forty percent

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more volume.

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Do you think you could do that? Oh? Definitely, Oh yeah, yeah, definitely.

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Well they couldn't do that, and so.

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The ten percent it going to require forty percent more

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volume in order to obtain the same gross profit dollars

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they were doing at the higher price. It So what happened, Well,

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they did more volume. It wasn't forty percent more, but

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they did more volume. So they had more customer complaints,

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more aggrevation, more work, more inefficiency, more you know, utilization

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of staff that was working at a lower price, and

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it didn't work at all. And that's the thing that

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business owners have to keep in mind, is that price increases.

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If you have a ten percent price increase, you don't

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need ten percent more volume. You need in all likelihood,

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depending on the number, it's forty percent more volume. And

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when I say depending on the numbers, it depends upon

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your gross profit march. If you gross profit margin is higher,

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you don't have to make up as much volume if

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it's lower. Most business owners are in the forty to

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fifty percent range, and that's of gross profit. And so

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that's why I say, you know, your volume, it have

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to increase forty.

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I love what you're saying here too, because it's kind

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of a peeve of mine that people sit there and say, oh,

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I didn't have to take algebra, and I'm never gonna

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use algebra in my life, and that's why they don't

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recognize stuff like this. Or here's a funny you'll you'll

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recognize us from retail. When I was in retail, we

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used to have Memorial Day weekend sales. We'll use that

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since it was recently Memorial Day a couple weeks ago.

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And.

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Basically we would have a sale that was fifty percent

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off plus ten and every single person thought.

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That meant sixty. But no, that's not what it means.

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You have to do the math.

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And so I relate that to this because so true

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people think, you know, doing a ten percent price co

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is not a big deal. But if you do the math,

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like you said, it's costing you for forty percent for

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that ten percent decrease, right, And no.

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One considers the cost of more customer complaints, more mistakes

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made in the field, more aggravation, more output means more people.

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No one considers that part.

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I love that too, because I do consider that part.

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Okay, The fact is is that I'd rather have a

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few big clients than a bunch of little clients in

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certain respects. Other respects, not necessarily, but those respects you're

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talking about.

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It is true because here's the thing too. You do

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this ten percent price cut.

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This is what I've learned in business all my life

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is that those new customers you get that you didn't

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get before the price cut, they're the ones that are

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going to call you ten million times, email you ten

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million times, have ten million questions, and you know, basically

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they feel for that ten percent price cut that they

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should get forty percent worth of extra service.

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Right.

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It's it's amazing, and that's and that's what that's what

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the ten percent price drap is because that you know,

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a business and even a five percent drop, you know

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you still have to make up more volume and you're

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still going to have that more activity, more aggravation, more

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people needed. It just a it's a it's a vicious circle.

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I strongly recommend no price no price drops.

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What do you recommend?

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I recommend price increases?

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There you go.

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You know, that's what I that's what I normally recommend it.

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It's hard for business owners to get their head around that, especially,

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you know, the situations where business owners have a real

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problem with it is they're trying to keep people busy,

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and so they'll drop what ever it takes just to

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keep them busy.

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Usually that's not a good practice.

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Over time, you know, maybe you have to lay off,

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maybe you have to put people on temporary leave, you know,

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and how they're collect unemployment.

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There's strategies around that that I've used with clients.

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I call it retention bonuses, where if people come back

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after a leave, they get a bonus if they work

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there six months or more. So there's all types of

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different ways to skin the cat on that business owners

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go right for the drop of the price, and it's

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just not the right thing.

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Yeah, And you know, I gotta say that there's in

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like the restaurant or service industry, they do that quite

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often in certain areas like I'm from the Jersey Shore

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where basically after Memorial Day weekend to Labor Day weekend,

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it's like insanity and the rest of the year is

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a ghost down, and so many of the business is

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especially in the service industry, restaurants or things like that

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closed down during the off season instead of keeping the

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doors open to really get no business. Or there's other

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examples I've seen of restaurants that, you know, they find

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out that maybe lunchtime is not their good time, so

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they'll close down for several hours during that time. Because

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even the fact that you think about it, if you

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have a restaurant as an example, the cost of just

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turning the lights on all that time absolutely could be

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significantly damaging to the business.

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Right. Oh. Absolutely.

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When I was in the ski business, we closed in

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the off season, totally closed shut them down, and it

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was just it was it was really effective because we

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specialized in skate. We didn't specialize in selling aqualungs or

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whatever the counter seasonal.

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Product would be. You know. So it definitely can pay

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off to do that, no question.

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So how do people reach out to you and get

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more information, find out more strategies that can benefit their business.

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You're with your powerful business strategies.

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Well, they could do a couple of things, Dean. They

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go to my website nextstepsfo dot net in the right

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hand corner is at a link to a diagnostic the

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diagnostic takes three to five minutes. You just answer a

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few questions and uh it comes up with three business

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strategies that your competition isn't doing, along with the financial

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impact that those strategies would have if they were implemented,

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along with an explanation of the strategy and how to

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go about implementing it. That's totally free. You could also

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go to my uh you go to my website and

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hit the contact page, fill out the contact form and

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just put diagnostic and I'd send it to you immediately.

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But it is right there on the site as well,

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so they could contact me in any of those ways.

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And once they do the diagnostic, that's a form of

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contacting me because I know that they did it.

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There you go.

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Well, once again, you're a wealth of information and this

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advice today should make people money for sure and save

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them money at the same time. Absolutely, thanks once again

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for giving us some powerful business strategies here on the

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Adventure of the Pipeman on W four CY Radio.

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Thanks for having me gate, Thank you for listening to

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the Adventures of Pipemin on W for CUI Radio.

The 10% Pricing Trap - Powerful Business Strategies

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