Price — The Most Powerful (and Most Ignored) Profit Driver

Published On - June 21, 2021

Ted Bonel 4. CASH
When most leaders think about growing profits, they start with two levers:
  • Cut costs.
  • Sell more.

But the third lever — price — is often the most powerful, and the most neglected.

As Hermann Simon explains in Confessions of the Pricing Man, even the smallest price adjustments can have outsized effects on profitability. Yet many managers s

pend 70% of their time on cost control, 20% on volume, and only 10% on pricing.

That’s the wrong way around.

hermann simonThe Real Power of Price

Let’s look at the data.

Simon analyzed Fortune 500 companies and found that a 2% increase in price (without losing volume) created enormous profit gains:

  • Sony: +136% increase in profit
  • Walmart: +41%
  • General Motors: +37%
  • P&G, Samsung, Nestlé: +10–15%

Even the most profitable companies like Apple and IBM saw measurable lifts.

In short: price has the greatest leverage on profit — and yet it gets the least attention.

The 3 Profit Drivers

Every business has only three true profit drivers:

  • Price
  • Volume
  • Cost

Managers typically obsess over cutting costs or boosting sales volume.
But as Simon’s research shows, a 1% improvement in price can improve profit more than a 5% increase in volume or a 10% reduction in costs.

Why? Because pricing flows directly to the bottom line. Every dollar you raise in price (if volume holds steady) is a dollar of pure profit.

The Power Tool Example

Simon offers a practical example:

A company sells a power tool for $100, which costs $60 to produce.
They sell 1 million units, generating $100 million in revenue and $10 million in profit.

Now let’s change one driver at a time:

  • +5% price increase: profits jump +50%
  • +5% volume increase: profits rise +20%
  • –5% variable costs: profits rise +30%
  • –5% fixed costs: profits rise +15%

The lesson? Every profit driver matters, but pricing delivers the highest leverage.

Why Companies Get Pricing Wrong

Many organizations chase market share instead of margin. They price aggressively, offer unnecessary discounts, or engage in “price wars” that erode long-term profitability.

Even Amazon, once obsessed with revenue growth at the expense of margins, eventually had to shift toward profitability.

Revenue growth means nothing if profit doesn’t follow. A great company must balance growth, value, and return.

So What Should You Do?

  1. Know your value. Understand how customers perceive what you offer.
  2. Price for impact. Set prices that reflect your value, not just your costs.
  3. Use counterbalance thinking. Balance market share goals with profit goals — not one at the expense of the other.
  4. Test and measure. Even a 1–2% shift can reveal elasticity, margins, and hidden opportunities.

Final Thought

Price is not a number — it’s a story about value.
When you understand your value and price with confidence, you gain the most powerful profit driver in your business toolkit.

If you’d like to explore how to unlock your pricing power? Contact me at tedb@strategyandexecution.com.au to schedule a free 30-minute discovery meeting.

To Scale Up your business! Take our Scaling Up/Four Decisions Needs Assessment to discover how your business measures against other Scaled Up companies. We’ll contact you.

TED BONEL, SCALING UP PRACTITIONER – STRATEGY & EXECUTION BUSINESS ADVISORS

Are you looking to scale your business and execute strategy with clarity and impact? I help CEOs and founders turn big ideas into real-world results, guiding small to mid-market companies through tailored strategic insights that drive growth.

My expertise lies in simplifying complexity – bridging high-level strategic frameworks with the practical realities of running a business. Unlike many consultants who focus solely on theory or execution, I specialise in both—translating strategy into actionable, transformative steps that deliver lasting results.

 

If you’d like to explore how to unlock your pricing power? Contact me at tedb@strategyandexecution.com.au to schedule a free 30-minute discovery meeting.

 

ABOUT STRATEGY & EXECUTION

For over 20 years, Strategy & Execution has supported leaders and organisations in developing and executing winning strategies. We provide expert facilitation, executive education, and hands-on consulting to help businesses refine their strategic direction and implement it effectively.

Using proven methodologies like Scaling Up, E-Myth Mastery, Outthinker, and more, we challenge conventional thinking and equip organisations with the tools to accelerate growth. Our approach is dynamic—combining deep business experience with practical execution. We don’t just advise; we roll up our sleeves and work alongside you to make strategy happen.

If you’re preparing for a strategy development or execution challenge and are committed to creating real value, we’d love to hear from you. Learn more about our work or upcoming workshops

RECENT POSTS