Crack the Code on Pricing Tests - Why Guess Which Wins When You Can Test?

Reduce your pricing, & increase your profit margins… But, how is that possible is something you might be asking?

Every client we take onboard for ongoing CRO we try to test pricing of their hero SKU if possible. Yet, many businesses adjust their prices based on instinct rather than data, potentially overlooking critical metrics like conversion rate, profit per visitor, and revenue per visitor.

Pricing isn’t just a number; it's a lever that directly affects your bottom line. A small tweak in pricing can lead to significant gains in profit, especially when operational costs are fixed in the short term. For example, a modest 5% increase in revenue could amplify your profits by as much as 50% if costs remain unchanged.

We need to try take a more holistic look, we can’t just say it is a winner. What does it do to ads? Does it increase or decrease any metrics like CAC that we are watching closely.

This week, we delve into why pricing tests are crucial and how you can implement them to optimise your revenue and profit margins.

POWER OF PRICING TESTS

Pricing is a powerful tool because its adjustments go straight to your bottom line. As shown in this diagram below (kindly provided by Intelligems founder Drew Marconi).

A small increase in revenue can translate into a substantial increase in profit, owing to the leveraged effect on operational costs which often remain fixed in the short term. For instance, a 5% increase in revenue could lead to a 50% increase in profit if costs are kept constant and margins are managed well.

SO, DO YOU INCREASE OR DECREASE PRICING?

BOTH. We recently helped a client optimise their pricing through strategic testing and you probably wouldn’t be able to guess how it went...

We compared three price points, $29.99 (the control) vs $27.99, and $32.99, we identified that $27.99 not only increased the conversion rate by 14% but also raised the revenue per visitor by 7.46% and profit per visitor by 4.81%. This test showed a clear preference for the lower price point, contributing an estimated increase of $10,399 in monthly revenue with statistical significance at 95%.

$4740 EXTRA profit per month if everything stays the same. Now we increase spend, traffic and this is a huge revenue unlock, along with the rest of our winning tests.

How to Implement Effective Price Testing

Implementing a successful pricing strategy requires precise tools and a hypothesised approach:

1. Choose Your Tools Wisely:

   • High-End Options: Intelligems, Convert.com

   • Budget-Friendly Solutions: Shop Lift, Visually

2. Set Up Your Test:

   • Identify Price Variability: Opt for a range around your current pricing, typically 5-10% on either side.

   • Segment Your Audience: Test different price points across various customer segments to gather different responses.

   • Measure and Analyse: Focus on key performance metrics alongside your advertising metrics to identify the most profitable price point.

   • Refine and Implement: Adjust your pricing strategy based on your findings to maximise profitability.

Price testing is more than just a guess at a number; it’s about making informed decisions that can significantly increase your business's changes of success.

One of the biggest levers you can pull as a brand.

AS ALWAYS - LEARN, HYPOTHESIS, TEST, REPEAT.

If you are doing over 60,000 visitors per month and interested in increasing profit per visitor and conversion rate of your website. Book a call below!

Paddy ✌️