“They charge too much and it’s making it hard for them to grow,” my friend told me.

We were discussing a small creative agency we both know as we sipped scotch on the bank of the Lewis River in southwest Washington. We were backpacking and had just finished a long hike through the summer heat.

My friend gave me some example projects that the creative agency had sold in the $30 – 60,000 range and related it to the feast and famine cycle that many agencies experience. He theorized that the team kept growing and shrinking because the creative agency couldn’t maintain demand at the current pricing.

Pricing is a lever you can pull to power growth.

The common advice is to raise pricing. Most businesses are under-optimized in terms of pricing and, for small businesses, often under-charging. The advice is helpful much of the time and drives growth by increasing profit.

However, there is a spectrum of pricing elasticity where at the high end you begin to depress demand. Customers find you and don’t buy because you’re too expensive.

Selling at a lower price doesn’t necessarily mean that you’ll make less money and often you actually make more. But lowering pricing in a way that leads to growth requires you to change your formula.

More on that tomorrow…

If demand is a challenge for your small business, how does your pricing affect it?

Is it easier to raise demand or lower pricing?

You can map the math of different decisions by looking at your conversion to sale ratio and how pricing would affect the value of sales. (If you do this, you should evaluate raising prices too- elasticity is a spectrum and it might be easier to keep selling to the high end and just make it even higher.)

Featured image is the Band-e Kaisar, “Ceasar’s Dam,” built by Roman engineers who were prisoners of war after Persia defeated Rome in the Battle of Edessa and captured the Roman emperor Valerian. By Ali Afghah and used under Public Domain.