All other things being equal (simple contribution analysis for pricing)

If you make a product that costs $5 to produce and package, how much should you charge for it?

I don’t know.

But there’s a simple bit of arithmetic you can do to understand sensitivity in pricing.

Should you charge $7 or $9?

Well, if you charge $7, you make $2 a unit.

If you charge $9, you make $4 a unit, or twice as much.

Which means, all other things being equal, you’ll need to sell twice as many at $7 as you’ll need to sell at $9.

It doesn’t feel that way, but it’s true. 100 sold at $9 is more profitable than 180 sold at $7. And to take it a step further, you’ll need to sell 800 at $5.50 to make as much as you would have made at $9. Eight times as many.

No one knows what your demand curve is going to be like, no one is sure what impact your pricing will have on all the other items you sell.

But be honest with yourself about contribution.

Price is a story, it’s a story we tell ourselves and others about what we have to offer. But price is also the path to being able to stay in business.


[Unrelated helpful tip: A significant bug exists in Word, one that just cost me two hours. If someone sends you a Word file as an attachment in Gmail and then you drag that to Word to start editing it (without formally downloading it first), Word will let you work on it, save it, work on it some more, close it–and then your work is gone forever. Don’t do that.]

Update! Thanks to Justin, Alan, Matt, Luis and other loyal and talented readers, I’ve put together a method that got the file back. My deep searching yesterday didn’t find it, so here it is for the next shmo who gets stuck:

  1. Repeat the process that opened in the file in the first place. In my case, drag it from Gmail to the Word icon in the dock on my Mac. The original opens.
  2. Hit ‘save as’.
  3. You’ll see the usual save window, and you can hit the name of the folder to see the location of the hidden file. In my case, the letter “T
  4. Then, you’ll need to be able to see the invisible files on your Mac. In my case, the easiest thing was to go to Terminal and turn that on.
  5. And then, folder by folder, I found my way to the magical “T” folder and there it was, gloating at me, just waiting to be re-opened and saved properly.

Thanks, team!