As you know, odd pricing helps sell more. What I mean by odd pricing is setting prices like $19.99 instead of $20.00.

But Why Does $19.99 Sell Better Than $20.00?

It works because we read from left to right. And we judge the overall value of a number by its leftmost digit, which is the most significant digit in the number.

Because of that, $19.99 seems to us like $1xxxx while $20.00 seems like $2xxxx.

For the seller, it's just a difference of penny in lost profit. For the buyer, it's the difference between, well, $1xxxx and $2xxxx, which sometimes feels twice as high. In rare cases a whole-dollar amount sells better, but more on this later.

The real power of knowing how to price is in the cent value at the right side -- that "xxxx" I just casually discarded.

You'll sell even more units of an item at $19.95 each than if it were priced at $19.99. Many more. If I had to guess, without knowing your industry or specifics of your business, I would say at least 30% more.

Here is something interesting for you to consider.

Right now, looking at both $19.95 and $19.99, you might intuitively feel that $19.95 seems more "natural" than $19.99. It's a tiny feeling, almost non-existent, but it's there. You can't explain it, but $19.95 just looks like a "more beautiful" number of the two. And it's not because $19.95 is four cents cheaper than $19.99. It has nothing to do with the actual value of the price.

Keep reading, and I'll explain why you might be feeling that way in a minute. You'll be amazed at the power it gives you as a seller to control your buyers because people who are not involved in selling are even more receptive to this.

For now, I want you to understand that for you, as a seller, cents mean nothing. Cents in the price are an instrument of manipulation of perception, nothing more.

If in one day, you sell 10 "widgets" at $19.99 each, then your revenue is $199.90. But if during the same time frame you sell 13 "widgets" at $19.95 each, you get $259.35. All while spending the same amount of money on rent, advertising, salaries and other expenses.

Even though, you might lose a few pennies on the price of each "widget", you make much more back because the overall number of sales is so much greater.

$19.95 is just one example, but the same magic happens at any price point, and .95 is not always better.

Can You Guess Which Ones Of These Prices Sell Better?

See how many you can guess from the list of price points below. Use just your intuition and nothing else. If you had to sell a product at a specific price range, what price would you set? For each pair of prices, pick the one you believe is better, click on the little circle next to it, and see the result. Give it your best shot.

$15.95     vs.     $15.99   
$78.95     vs.     $78.99   
$11.95     vs.     $11.99   
$22.95     vs.     $23.00   
$63.95     vs.     $64.00   

Now look at how many you got right. Most people pick one price correctly at most.

Look at that list again. It doesn't seem to make sense, does it? Is there is no system that outlines some kind of a pattern?

How did I come up with what's better and what's worse?

Why is one price better than another?

More importantly, how does knowing that help you make people buy from you like there's no tomorrow, because to them your prices seem perfect for the value they are getting?

"How" Consumers Think About Prices

Let's look at how a typical customer examines the price of an item. Two separate cases. First, when an item is priced at $24.99, and then the same item priced at $24.95.

Here is what happens in their mind within just a split second. That instant when they decide if they like the price or not. Understanding what happens, how it happens and why it happens is going give you the ability to guide their thinking. And that, plain and simple, will let you sell more merchandise to more people.

It is extremely important that you understand what I'm going to explain below. This is the key to knowing how to manipulate the perception of your customers. So read it slowly and visualize each step before jumping ahead. Don't rush. It will all become clear in a minute.

With a price tag of $24.99:

- That's a nice "widget".

- I wonder how much it costs, should be around... hmm... (turns the item around to see the sticker or looks down to where the price is shown)...

- Twenty-something...

- Twenty-four something...

- Twenty-four-ninety-nine!

- Yeah, exactly as I thought. That's a great price.

- I'm gonna buy it.

With a price tag of $24.95:

- That's a nice "widget".

- I wonder how much it costs, should be around... hmm... (turns the item around to see the sticker or looks down to where the price is shown)...

- Twenty-something...

- Twenty-four something...

- Twenty-four-ninety-something...

- Twenty-four-ninety-five!

- Yeah, more or less as I expected, around $25.

- Is it worth $25?

- Do I really need this "widget"?

This is the difference between making a sale and not making one. But why? I bet this doesn't make any sense to you right now. Why would a person think differently just because of a difference of four cents? Especially if the "worse" price is actually cheaper?

What's happening?

Well, here is the detailed explanation of what happens and why it happens that way. This is the biggest secret of success in retail pricing.

Let's review each step of what's happening.

As she is about to look at the price sticker, she really begins to wonder "how much it costs". There is this intense sense of curiosity. (Think of yourself when you are shopping. That instant when you are about to see the price of an item. That's the curiosity I'm talking about.) She starts making guesses about what the price is as she looks at the price tag. She doesn't even realize it, but she tries to guess the price while looking at the price sticker.

This is important to understand. I'm not talking about customers' thinking before they look at the price. It's all happening while they are looking at the price tag.

We read from left to right. And we absorb and process the values of numbers the same way. From left to right, one digit at a time.

Two things are happening simultaneously when a customer is looking at a price tag: she keeps guessing what the price is going to be as her brain keeps processing the number that she is seeing on the sticker, digit by digit.

With the example price of $24.99, the first digit she sees is "2".

Immediately, she narrows down the possible price of the item from all reasonable prices to "twenty-something".

Her brain continues processing the number she is seeing and hits the next digit "4".

So now it's "twenty-four-something".

As the possible range of prices for that item narrows down, the customer becomes more willing to make the final guess about what the price is going to be. In order to judge if the price is good or not, she must make a guess about what the price should be before her brain has finished processing what's written on the price tag. She needs that so that she can compare the real price to what she thought it should be. Remember, all that happens in an instant, and the customer doesn't even realize it. We all do it. That's how our brains work.

Here is another important insight:

The bigger part of something we already know, the more willing we are to make conclusions about the rest of that something (or that something as a whole).

That's common sense. But in pricing, this is why knowing how to set the cent value is more important than anything else.

It starts with "$2...". Now she knows it's no longer under twenty or over "twenty-something". With "$24...", it's no longer "twenty-something", but "twenty-four-something". By the time she gets to "twenty-four-something", she stats making specific guesses about what's going to follow as she feels that she has enough information. She already has an idea of what that something is. She just doesn't know it yet.

At this point, she has a specific number in the back of her mind. That number includes cents even before her brain has finished processing what she is seeing.

If by the time she is done processing the price tag, that complete number matches with what she anticipated, then she immediately begins to feel that the price is right and that it's "exactly what she thought it was gonna be". She imagined "$24.99" and the sticker says "$24.99". In reality, she only arrived at the conclusion that the price should be "$24.99" after seeing "$24..." and possibly "9", but she doesn't realize it. She feels that she knew it all along.

The customer always confuses the feeling of being right at guessing the price with the feeling that the item is worth that price (or that it's a "good price"). People are not capable of distinguishing the difference between these two feelings without specifically thinking about it. As a seller, you can use it to your advantage. But in order to trigger that pleasant feeling, the price must match her guess down to the penny.

Before she turned the sticker around, she had no idea what the price was going to be or what the price should be. She was simply curious about how much the item costs. But now, she is positive that she felt the price and it was exactly what she thought it should be.

And then, another psychological phenomenon comes into play. We hate to contradict ourselves. We hate being wrong. So once a person, has convinced himself or herself that he or she guessed the price, then there is nothing in the world that can convince that person that it's a bad price for that item. There is nothing anybody can say or do that would make that person feel that the price is not right for that item. After all, they saw the item and "predicted" its price, and it was exactly what they thought. How can a price like that be too high? It can't, and so they buy.

Now with the second example. The same sequence of events happens until the moment when the customer has finished processing the whole price sticker. What happens if after thinking the price should be "$24.99" the customer sees a price tag of "$24.95"?

She thinks "yeah, almost like what I thought". She doesn't realize why it's "almost like what I thought", not "exactly right". She just feels that way without paying conscious attention to the reasons behind it. She doesn't realize that the price is only 4 cents away from "yeah, that's exactly what I thought". She feels it was close, but it wasn't perfect. It translates into "this price is OK, but not that great".

So the whole opinion about your offer -- which is the price against the value that item would provide -- already has a bad aftertaste for her. It happens even before she finished thinking through the whole "is it worth this, is it not worth this". She already has some sort of a bad feeling because she missed the price. The customer can't pinpoint what it is, but something just wasn't right.

And because she can't tell why she feels that way, the customer comes up with a simple logical explanation: "the price is too high" or "I don't really need this item".

"OK, so it's around $25. Is it really worth $25? Do I really need this widget? Ah, whatever."

That's it. That's how you lose most of the people who would've purchased from you, but didn't.

It's this difference between feeling "yeah, exactly what i thought; that's what this item should cost" and "yeah, more or less as I expected". This is a huge difference. Big enough to make or break a sale.

So How Do I Know Which Prices To Set?

Of course, you can't know which number comes up in the head of every single potential customer for your price range. That's impossible.

But for each price range, there is one price point that has a much higher probability of being that "lucky" price most people would visualize. And this is what you are after. The more people like the price, the more sales you'll make.

How to find that number?

Hold on to your chair, the simplicity of logic in the following statement and the power it gives you as a seller will blow you away.

Which specific price points stick in the back of the customers' minds when they think "nineteen-something" or "twenty-four-something" or "sixty-something"?

The ones they've seen more often in their daily lives!

That's right!

If a person sees a price tag of $24.99 more frequently than $24.95, then that's what she is more likely to imagine when her brain is in the middle of processing a price tag that starts with "$24.".

Did you get it?

It's as simple as that.

Why does a price tag of, say, $19.36 look weird to you? That's because you've never seen it before. Can you recall when was the last time you saw something with that price tag while shopping around?

So a customer would never "guess" the price to be $19.36 while at the stage of "nineteen-something".

On the other hand, $19.95 is one of the most widely displayed price tags in that range. It occurs twice as often as even $19.99.

So if you price your item at $19.95, you will make your price "feel right" for the majority of customers out there.

If you didn't already notice it, here is the bad news: There is no single best value like .99 or .95 or something else that works for all prices. After all, $19.95 is better than $19.99, yet $24.99 is better than $24.95. And we are not even talking about other cent values yet.

Remember when I asked you to take a little quiz and guess the best price? $64.00 turned out to be better than $63.95. Why is that?

It's because when customers see "$6..." for a product that's more likely to be priced "sixty-something" than "six-something" or "six-hundred-something", they zero in on that range. In that range, they are more likely to assume that the next digit is "4" rather than "3" simply because that price tag happens to be put on more products out there. Because of that, a price of $64.00 sells better than $63.95.

Earlier I said that the closer they get to the last digit of the price tag, the more likely they are to jump to the final conclusion about what the price should be. But they start making initial judgements right from the start, from the first digit. So it's really not as simple as setting all your prices to .95 or .99. You need to take the dollar value into account.

Remember, if a customer subconsciously guesses the price, then they get the feeling that the offer is good. So make it easy for them to guess it right!

You are probably thinking: "OK, I get it. But how did you figure out which price to set?"

The Database Of Prices Of "Everything"

To figure out which prices occur more frequently, I compiled a database of retail prices for all kinds of merchandise. This database contains over 15,300,000 price tags.

Let's take $19.95 vs. $19.99, and I'll explain how I know that $19.95 is better.

I grabbed a sample of price tags from my database to see how many times I encounter each of the two. With these price points, I found 3618 items priced at $19.95 and 1531 items priced at $19.99.

Can you explain to me why $19.95 occurs more than twice as frequently as $19.99? Why are there more than twice as many products sold for $19.95 than for $19.99?

All those numbers are from a bunch of unaffiliated companies out there that don't share the same pricing policies, managers or suppliers. They don't even sell the same merchandise or operate in similar markets. Everything about them is different. But still, $19.95 is used much more often than $19.99.

Why is that? Why didn't I encounter something like 3618 vs. 3594 price tags? That would have been "close enough". But no, there are more than twice $19.95 price tags out there.

It doesn't matter why that is. I couldn't care less! What's important is that $19.95 occurs "out there in the world" much more frequently than $19.99. So an average consumer is twice as likely to see a price tag of $19.95 than $19.99 in his or her entire shopping experience.

In the case of $19.95 vs. $19.99, knowing it let's you set the price that's twice as likely to make your customers think "yeah, that's what I expected; great price" as we discussed above.

I also noticed something else. All across the board in the range from $4.00 to $99.99, I saw "spikes of popularity". One price would occur much more frequently than other "commonly used" prices around that amount. Like $19.95 occurring more than twice as often as $19.99 (and hundreds or times more often than, say, $19.36).

I saw something similar with all dollar amounts. There is always a leader. Sometimes, I saw .95 being better than .99, other times it was the other way around. In certain cases, a whole dollar amount is better than .99 or .95. And so on. But more on this later.

My Greatest Discovery In Retail Pricing: How It All Began

Let me tell you the story of my discovery, and how I actually managed to acquire 15.3 million price tags.

You see, I'm a businessman, but I wasn't always running a business. There was a time I studied math and computer science and then the time I worked as a computer programmer developing various algorithms for complex business processes.

This is the boring part, so I'll make it short. One day, I got fed up with working for somebody else! I got tired of having to report to somebody! I got tired of being bossed around! I wanted to achieve something on my own! Oh yeah, and then there was this little matter of the company I'd been working for going bankrupt in the dot-com bust.

One way or another, I was on my own. Four months, a business loan and a couple of maxed-out credit cards later, I had my very own small business.

I should add that I was always a geek and running a business didn't change me. I still solve my problems the geeky way. And one of the business problems I ran into was figuring out how to set my prices for the products I sell to my customers.

I read a lot of books on pricing theories that discussed techniques like "match the competitors", "below-the-market", "above-the-market", "cost plus margin" and a lot more. But when it came to cents, they all just said to use odd pricing, such as 99 or 95. But which one? None of the materials I read on pricing covered that.

Will a price tag of, say, $19.95 bring me more orders than $19.99, or $19.75, or any other price point around that amount? What about prices for products in other price ranges like $49.99 vs. $44.95? Or maybe even $75 vs. 79?

I was pretty sure that there wouldn't be any difference, but since I couldn't prove to myself that there were no difference, the geek in me kept telling me that I might be missing something big.

What if there is a difference, and I just don't know it, and I'm not using it to my advantage? That would mean I'm losing money in lost sales each and every day.

That kept bugging me.

Think about it.

You spend money on advertising, pay for the merchandise, pay your employees, and pay all other costs of running a business, and then you let some amount of revenue slip away just because potential customers didn't "feel" your prices are "fair" for the products you are selling. That's your money. The money you should have had in your pocket at the end of the day. The money you've worked and risked for. Why would you want to let go of a significant part of your money without even trying to do anything about it?

That's how I began to think about it. For me, it became about not losing what's really mine in the first place.

But all that was still a big "if". I was searching and searching around, but found no evidence or literature either proving or disproving that "fine-tuning" prices makes a difference in sales. I saw the usual "$9.99 is better than $10", but not much beyond that.

One day, I got a novel idea: Why not compile a database of "prices of everything", and see if I notice any patterns? The geek in me immediately woke up and demanded that I investigate this further.

The concept was simple: get the price tags for different kinds of merchandise and then look at the raw numbers to see if I notice anything while looking at the big (really big) picture. In other words, I didn't know what to look for, I simply hoped that once I'm done, I won't have wasted my time.

So I went on my data-gathering mission scanning catalogs, taking prices from on-line stores, flyers, newspapers, and any other sources I could find. I included price tags for merchandise from toys, to home appliances, to office accessories, to electronics, to collectibles and gifts, to random junk, to second-hand merchandise, and anything else sold in retail.

My goal was to get at least 5 million price tags into my database. I don't know why I picked 5 mil, it just seemed like a big enough number at the time. But soon I realized that collecting and storing that many price tags by hand would take more than a lifetime. After about a month of doing everything myself, it became apparent that I needed help with this project. There was just too much scanning and recording to be done for one person.

So I hired one and then three more kids from a college nearby to work for me part time. Hiring people for a "pet project" while carrying a huge outstanding business loan didn't seem like a smart thing to do. But I did it anyway. And that turned out to have been a very good decision, and I'll tell you why in a minute.

The target of 5 million price tags was too much even with the hired help of four people. I couldn't afford to hire more, so the only option was to optimize the way we gather price information. And here is the best part.

One of the college students I hired turned out to be a computer science major. Both of us being geeks, when combined forces, started looking for some kind of a high-tech solution -- something more effective than scanning and typing.

Eventually, we stumbled across a digital version of a catalog of one large retailer. It was a listing of their merchandise (with current prices) at their retail locations, and this listing was made available on-line. Once we realized that, we started looking for more such sources. Turns out, many retailers provide catalogs in digital form if you look hard enough, and some provide them one request if you approach them.

We were able to scan prices from such listings automatically, which dramatically increased the speed with which we were adding new price tags. On top of that, we started including listings of e-commerce sites by automatically scanning pages of those sites and extracting the prices from the web pages. We were now quick, but it wasn't easy because even in digital form every company had its listings structured in a different format. So there was plenty of manual work involved (not to mention the constant need for error checking). But still, automating the process made it possible for us to gather an enormous amount of data. On some days, we were able to add as many as several hundred thousand new price tags into the database.

All that while the other three guys kept collecting price tags the conventional way. Such an arrangement made it possible for me to gather a lot of data, but at the same time keep the price sources balanced and spread out among different industries and sales channels.

We stopped about eight months later, when the summer break approached and they all had to leave. At that time, I had over 15.3 million price tags recorded in my database -- many more than I originally wanted to collect.

I don't know why I didn't stop sooner, when I met the mark of 5 million records. I guess I was just greedy for more data without any rationale behind it. Anyway, 15.3 million price tags is a lot of data! I was really excited, but sick and tired of doing the same boring task for so long. Every free minute of a day not consumed by running my business went into this project.

So I collected and had in my possession information about a little more than 15,300,000 retail offers out there. Now what?

It then hit me. I simply didn't know what to do next. How could I have possibly started a task of such magnitude without thinking things through?

I'll spare you the details of how I failed many times, trying to make sense of it all, and how I had to rent two large number-crunching servers (those are big computers used for advanced calculations) because it would take me decades to run searches for complex patterns on so many numbers using a regular desktop computer.

I've gotta say it cost me a pretty penny. But in the end it was all worth it.

Eventually, after stumbling across one psychology book that described how humans process numbers, I put two and two together and figured out how to use my database to price products.

What I Did Next

Once I've finished compiling the data, I had to test this my findings. I changed the prices for some of my items and nervously waited to see if my sales would increase. And they did. My gross daily receipts became higher than usual. They were fluctuating from day to day as before, but overall I was making more sales.

I was really happy about it, but then it hit me: maybe it's just a seasonal increase in sales or some soft of a coincidence? What if the increase is happening because of a good weather which in turn means more people are going outside to do shopping? What if something is wrong with my accounting? Those "what ifs" kept bugging me all day long.

At the beginning of each day, I expected that the sales will go down. At the end of the day, seeing the sales still going strong, I thought that the next day would surely bring me back to reality.

It really was too good to be true, but the worrying was killing me. So to make sure I'm not delusional, I decided to perform a small test.

I placed two units of the same item in different corners of the shop and attached different price tags to each of those units. Everything was the same but the price. Just a couple of pennies difference

Whenever someone found both of them and noted to me that I "accidentally had the same item with different prices", I just offered them the lower of the two prices. If a customer spotted my test, then it's no longer a valid test. I simply discarded those customers from my stats.

The most interesting thing occurred with people who only encountered the item once. They only saw one or the other price tag while making their decision to purchase (or not to purchase) as they normally would. I took a notice of the ratio of people who bought each of those units to the total number of people who looked at either one of them.

The results were amazing. To make sure I'm not dreaming, I repeated the test with other items, each time setting up a pair of identical items with different price tags.

In some cases, the unit with prices set according to price popularity had as much as 90% sale rate, while an identical unit with prices set according to my gut feeling had the usual 30-50% rate. That is, normally, less than a half of the people who picked up an item to look at it (and to look at the price tag) purchased the thing. At the same time, almost everyone who looked at at item, specifically priced to appeal to them, bought it.

I even tried switching places and swapped the stickers because I thought the location on the shelves might interfere with my test. But no, the "customer's interest" in the items followed the price tag no matter where I put it. And since I didn't count the absolute number of times I sold an item but the ratio of orders to the number of people who looked at the item, the hot-spots of foot traffic among the shelves didn't affect my results.

At that point, I was ecstatic. I knew that my business is now permanently going to be bringing more sales. Even more, once I finish updating the prices for the rest of my merchandise.

Around that time, I came up with the name for this technique: I called the concept price popularity. Here is how price popularity affected a couple of convenience store owners. They just happened to be lucky enough for me to be one of their regular customers.

A Story About A Small Convenience Store

Not a long time ago, a small convenience store co-owner at the corner of my street (the only place open to buy coffee at 3AM, yes I'm a geek, I know) changed some of the prices for slowest-selling merchandise according to my recommendations. We got into a conversation about his business, and I made some suggestions. That stuff was no big deal, like scotch tape packs, garbage bags, and other random things you might pick up while you are shopping there. But still, he wasn't moving much of that, so for him it was all just a waste of shelf space.

We talked, and I told him which prices to change to what values (in most cases, nothing more than a couple of pennies). And then I went home.

I forgot about it until next week when I came back, again, at around 3AM. And this is what I learned. Within a week, most of the items with changed prices were sold out, and he was ordering more to replace the stock. The guy was really excited and couldn't believe that such change in customer response was possible at all, let alone a mere adjustment of prices by a few pennies would do it.

This was some time after I'd changed my own prices so I already knew that that's to be expected, but I still felt excited for him. Even now, I get a rush every time I see price popularity in action.

He told me that he noticed that most of the sales for those items (the ones with updated prices) came from people who took the last glance at the shelves just before checking out at the register. Initially, they were only carrying the merchandise that they originally came for.

In most of those cases, it seemed as if they just looked at one such item that caught their attention such as a scotch tape pack, saw the price, and thought "hey, I don't have any scotch tape at home, and you never know when you might need some". And they bought it, because the price seemed just right.

I told him that I was very excited for him, and I would love to stick around and talk more, but I needed to go home because it was almost 4AM, and even geeks need to sleep sometimes.

How I Almost Missed The Best Price Points

As soon as I really started using my database of prices, I ran into a big problem. Two problems, actually.

For one, there was just too much data. Sure, having access to so many price tags is a good thing. Such enormous amount of data is what made it all possible. But every time I needed to find the best price to use that is close to a certain amount I had in mind for that product, it took me almost half an hour to do.

If I wanted to sell a certain product at, say, "around $20" and if I've never looked up that price point before, I had to check $20, $19.95, $19.99, $19.75, $19.50,... $22.50, $21.95, and... you get the idea. Anything I could think of within a couple of dollars in each direction.

I had to check each of the prices that I thought would be good candidates. After that, I would pick the one that occurs most frequently in the database, more than any one of the others I checked.

For any price out there, you can easily imagine 30 or more price points that might be good. Maybe even more than 30. Remember, we are talking about a few cent increments here.

I had to spend a lot of time just to find one good price. And because I have a lot of items to sell in different price ranges, doing things that way wasn't practical.

But that wasn't even the worst problem. There was something else that I realized later. And it was lowering the effectiveness of my pricing.

By doing things manually, I could easily miss some price point by not even looking into it. That happened a couple of times, and I only caught it much later. Sometimes, I ended up using the "second best" option because I never checked what later turned out to have been the best price.

Think about it.

Let's say you want to sell some product at "around $40".

You would test $39.95 and $39.99 and maybe a few other obvious prices. But what if "$38.95" was actually the best price "around $40", but you never even looked into it? You would settle for, say, $39.99 all while $38.95 would bring you much more sales. And the $1.04 you "lose" on each sale would recover itself many times over through higher sales volume.

That's a tough one.

What's worse, the more you keep checking around some price point, the more you become convinced that there is still some price you haven't checked that will beat all other prices you've looked into so far.

I knew that I needed to somehow extract just the gist of that data.

I didn't really care about all possible prices (like $73.12 or $23.86), but at the same time I needed to find the ones that are the most popular, and I absolutely needed to eliminate the possibility of missing something.

Here is what I did.

I created a program that automatically ran through all prices in the database. It checked the occurrence of each price from $4.00 to $99.99, cent by cent, and recorded the result into a table. I plotted the data in that table.

I ended up with a graph. The horizontal axis was for price points "$4.00, $4.01, $4.02... $99.97, $99.98, $99.99". The vertical axis showed the frequency of the corresponding price point for each cent increment.

Looking at the graph, I immediately saw "spikes" that gave me a good clue of where to look. It gave me a way to make sure I won't miss any of the "best" prices and would never settle for the second or third best.

(On the graph, it looked like a series of spikes around a certain amount with one of such spikes always being much higher than the others around it.)

I studied each spike and compiled my findings into a report to use as a reference in my day-to-day business life. I always have a printed copy on my desk. And whenever I need to check or change a price, I just grab it and I'm done in 45 seconds.

Some people ask me "Why do you only pay attention to pieces from $4.00 to $99.99?"

Sure, there are retail items sold at higher prices than $99.99 (and lower than $4.00), but the range I picked covers most of the price tags out there. Besides, over $100, it's too hard to guess what the prospect would think. At higher prices, cents play a lesser role (and it shows in the data). Most people don't even take cents into account, even subconsciously, when the total price gets that high. Price popularity still works, but it's not as effective as it is with prices under $100.

E-commerce vs. Brick-and-Mortar Stores

I knew I was safe and my business was booming, so I didn't have to worry about this all being a dream any more. But I wanted to see how far I can push it. So I called a good friend of mine (we used to be roommates in college) that runs an e-commerce website carrying many different products and sells them exclusively on the Internet.

He is really someone I look up to when it comes to business matters because he always had a certain amount of business intuition that I lacked. And I respect his opinion.

I told him about price popularity and the extra sales I've been getting and pretty much everything I just told you. He listened to me carefully, thought about it for a minute, and then told me that I'm "fool of crap". After that, he said that he has a way to test my theory with a 100% certainty. So if I'm right, I'll know that I have something great here, and if I'm wrong, then I can relax, stop stressing out over price points, get over the whole thing, and get back to running my business as usual.

He performed what they call a "split-test". What this means is that they rig the website to show a certain price to one half of the visitors and another price to the other half. After that, they measure the number of orders they received from each of those groups.

For example, the fist website visitor sees $19.95. The second sees $19.99. The third sees $19.95. The fourth sees $19.99. And so on.

It's a high-tech version of what I did with the shelves, but without the possibility of any visitor finding the "other" price. It's sneaky, but very effective for testing things.

He tried it with 10 products on his website that he randomly picked for this experiment.

For each item he picked, I first looked at the original price he had for the item. After that, I looked up in my report and told him the best price to use for the corresponding price range. He set that price to be shown to the "second group" of the visitors of the split-test.

Once the test began, one half of the visitors to his website would see the old price while the other half would see the new price that I told him to use (which was always only a few pennies away from the original price).

He told me it would take him a few weeks to make sure he gets enough orders for it to be "statistically significant". He needed to get enough orders for each item and each "version" of the price to make sure that any increase in sales he might see wasn't just a random coincidence.

I agreed, and he said that he would get back to me later. He also told me not to hold my breath for the results.

So I went back to running my business and slowly replacing old prices with the new ones for the rest of my products. The sales kept increasing, and all was well. Still, I kept eagerly waiting for his phone call. I didn't want to call him first because I didn't want to seem desperate and give him another chance to laugh at me, so I just kept waiting and worrying.

Even though, I knew that my business was doing better, and I had nothing to worry about, the on-line pricing seemed like the ultimate test because on the Internet, there is really nothing affecting your shopping decisions but the price. Especially, since competition with other offers is just a click away. So if price popularity worked even on-line, then I would know that my theory is correct and can be used for any type of business.

Three weeks later, he finally called. I saw his number on my caller ID, so I greeted him specifically instead of saying the usual "hello".

"Hi Steve, how is it going buddy?"

In response, the very first thing he said -- even before saying hello back to me -- was "dude, give me the rest of the price points to use for all my other items!"

That's it. I didn't need to hear anything else from him to know that price popularity works in any environment.

Figuring Out The Cent Values Is Awesome And Will Help Me A Great Deal,
But What If I Don't Know Even The Approximate Price Range To Use For My Products?

Ah, I'm glad you asked. That's the easy part.

With all the possible ways to determine how you should price your products, there is one way which is definitely the safest way to go.

The keyword is safe. That's what you should care about if you run a small business. Don't pay attention to slick experts talking about matching the market, analyzing trends and all that other stuff. Leave all that to the giant corporations.

If your cash flow is not established, you'll be in trouble no matter what.

And for a small business, it's all about cash flow. If you don't have millions of dollars of reserves stuffed in your bank accounts, then don't risk experimenting while determining the rough price ranges. Go with the "cost plus" system of setting your prices. Start by basing your prices on what it costs you to deliver the products to your customers and the amount of money you want to be making in the process.

Here is one way to figure out the overall price range for any item you sell.

Take your cost of the item, and multiply it by 2. That starts you off with a 100% markup.

Factor in all other costs associated with making a sale, and see if you are clearing at lest 30% net profit. That includes everything: advertising costs, rent, salary for your employees (and your own, don't sell yourself short), etc. Such costs should be divided by how many units you can realistically sell in a given amount of time. Don't stress too much here, just be realistic.

I should say that a 35% net profit margin is better, but 30% is the lowest you should aim for. You don't want to run a business with too small of a margin. You won't be making any money even though a lot of it will go through your hands. That's what kills more small businesses than anything else -- this illusion that your business is booming while not much is left in the pocket at the end of the day.

If your net profit ends up being higher than 50% of the revenue, then drop the price to make the margin around 40%.

Once you've figured out the rough price range for your item, then open my report and lookup that price range.

Let's say that based on splitting up cases/pallets/packs of some item into individual units, you have to pay $13.92 for each until to your supplier. That's your cost. Multiply it by 2. That gives you $27.84.

You estimate that it will cost you, say, $3.72 in overhead expenses to sell each item.

Your cost is $17.64 ($13.92 + $3.72), and your net profit is $10.20. That makes it 36.6% of the revenue ($10.20 / $27.84), so you are fine with roughly this price.

Of course, you are not going to put $27.84 on your price tag, so now you need to figure out your final price that would appeal to the customers. Something that would make them feel that the price is perfect for that item.

Most of the time, you'll have only one good price point that corresponds to the number you got. And that's what you would settle on. But sometimes, you might get two or more good points around your target amount. This example has two good price points to show you the harder case. Obviously with just one point it would be easier, so once you get this, you'll be able to set a price for anything.

Going with the real numbers from my report, the best price points around $27.84 are $24.95 and $29.99 (listed on page xx).

Take each of them and plug them into your equation for profit margin. Do the reverse of what you did in the steps above to arrive at $27.84.

Your own costs won't change when you only change your final price on the sticker, so the formula is pretty simple. (Actually that's not true. With a "good" price you'll sell many more units, so the share of rent and other fixed expenses for each unit sold will drop dramatically. But let's keep it simple for now, especially since such correction is always in your favor.)

Here is the overall set of rules to follow when picking the best of the two price points:

If the higher one happens to bring you over 50% net profit then go with the lower one.

If the lower one happens to bring you under 30% of net profit then go with the higher one.

If it happens that at the same time the lower price brings you less than 30% and the higher one brings you over 50% then go with the higher one.

Here is how it works out with this example:

Your cost is fixed at $17.64 per unit.

$24.95 - $17.64 = $7.31 of net profit. $7.31 / $24.95 * 100% = 29.2% profit margin

$29.99 - $17.64 = $12.35 of net profit. $12.35 / $29.99 * 100% = 41.1% profit margin

You would go with $29.99.

That's a pretty simple formula. And because it's based on your costs and margins, it's the safest way to set prices.

As I said before, you only need to do these calculations when you have more that one good price point candidate in your range. If $24.95 didn't have good price popularity, then you would only see $29.99 in the report and that would be it. That's what you would use right after arriving at the rough amount of $27.84.

In most cases, you'll only have one price point that really "sticks out". So what I've shown you here is the most difficult case. Which is still pretty simple.

Anyhow. By doing things this way, you keep the core of your cash flow safe using the right rough amounts. At the same time, you make your item prices intuitively attractive to the customers by fine-tuning the pennies.

You could use this formula without my report, but then, you would have to guess the final prices to use. Without the report, you could end up with, say, $29.95, which is much worse than $29.99 for the reasons we've discussed earlier on this page.

Why Trying To Guess The Best Price To Use Doesn't Work

Trying to use your gut feeling to pick the best cent value for your prices won't work. It won't work because you are aware of what you are doing.

When deciding on a price, your mind acts very differently from the minds of your customers.

Remember as we discussed earlier. When a person is reading your price tag, his or her brain processes the price one digit at a time while simultaneously trying to guess what the final price is going to be.

When you are trying to decide which price to set by trying to place yourself in your customer's shoes, you are not genuinely guessing what the price might be. You just aren't. And you can't fool or force yourself into thinking that you are.

Your mind does a very different thing.

This happens subconsciously. And trying to imagine yourself as if you were your customer won't work. All price points will seem equally appealing to you. Try it. Imagine yourself as your customer, and try to see what pops in the back of your head if you think of, say, $35. Nothing huh?

You know that the price should probably be $34.xx. But what's better $34.95 or $34.99, or maybe $34.75? Definitely not $34.75? Are you sure $34.75 is not the best price?

Even re-living your own past shopping experiences doesn't help. It's subconsciousness, not consciousness. The more you fixate on some numbers, the more unsure you become of which one to use. I know. I tried it.

Remember how you felt $19.95 to be more natural than $19.99? Yet, you couldn't pick all five price points correctly in the quiz that followed. (Right now, $19.95 and $19.99 might seem the same because your feelings are numbed down. Your logical thinking is turned on. So don't worry about it.) But that shows that it's impossible to predict the best price by thinking about it.

It can only be predicted with statistics. Only by examining the cold hard numbers. Something I did in my report.

My Report Will Not Help You If...

Even though price popularity is a really powerful phenomenon, it has its own limitations. Here is a list of situations when my report will not help to increase sales:

If you sell wholesale

I don't mean selling in bulk to consumers. I mean real wholesale. When a distributor sells products to a retailer for further resale to customers. In such case, changing prices this way doesn't help to sell more. Retailers don't see the world in the same way as regular consumers when it comes to buying the merchandise they know they are going to be selling to someone else down the line.

If you sell services, not products

I'm not sure why, but it just doesn't work. Especially when selling business-related consulting services or services performed by a licensed professional.

If you sell luxury items

My guess is that the kind of customer that shops for luxury items doesn't pay much attention to prices. As a matter of fact, some of them buy specifically because an item "costs a lot". So picking a price that makes them feel as if it were "more affordable" might actually harm more than help.

I'm not talking about really high prices in the thousands or tens of thousands. This report is for prices from $4.00 to $99.99. But even in that range, luxury items don't seem to be affected. For example, a "designer" dog bowl covered with silver, that costs $80.00, won't be selling much better if you set a price according to price popularity for the best amount in that price range. People who are willing to pay that much for a bowl for their pet are thinking about their pet at that moment, not about the price of the bowl.

If you sell rare or collector's items

As with luxury items, products that are sold based on how rare they are don't seem to be affected by price popularity.

If you sell to other businesses

In business-to-business commerce, purchase representatives are human too, so price popularity works on them just like with any other consumer. But unlike regular consumers, they don't buy on the first impression. They get a price quote and then start running their numbers on it to figure out if it falls within their budget and if it will get approved by their management. By the time they are ready to make the decision, the first impression they got after seeing the price is long forgotten. So price popularity is ineffective.

I tried changing prices in order to help various businesses in the situations I just outlined, but price popularity didn't seem to work well. It showed no improvement in sales most of the time. I saw a slight improvement in certain cases, but nothing that would impress me. Nothing comparable to how it explodes sales when applied in a regular retail environment, when selling directly to consumers that are buying "in the moment".

Why $50?

The price of my report is $50.

Now, why didn't I set the price to $49.xx or maybe even $54.xx?

Sure, a price tag with a carefully picked cent value would look much more attractive to you. I can name you at least 6 price points around $50 off the top of my head. Each of them has far greater price popularity than $50 itself.

So why didn't I use one of them instead?

I'll tell you why in a minute. But since you are buying this report for your business, you need to look at it from a completely logical perspective. So forget how the price looks or feels. Feelings are for buyers, not for sellers like you and me. In business, there is no such thing as "this is a good price" just because it feels good. It's all about cost vs. benefit. If the return you get by using my report is greater than $50, then it's a good price by definition.

So the only question is: Will my report bring you back $50 through increased sales to make itself worth its price?

Well, if my report only brings you $50 of extra net profit, then it will have been a gigantic waste of time. I wouldn't even bother putting up this website if we were talking only about $50.

But if changing prices can increase your sales by at least $50 per day, each and every day you are in business, then I would say buying my report really helped you. So this is what I'm aiming for.

Truth is, it might bring you extra $50 per day of profit or extra $5,000 per day. As you have probably guessed, it all depends on the size of your business and your current sales volume. The more you currently sell the greater the increase will be in absolute numbers (it will be the same percentage-wise).

But the important part is that the increase in sales will be permanent, and you'll be getting extra profit from day one and for as long as you run your business and set prices this way.

And the increased sales volume will in turn help you grow your business much faster because you'll be able to start spending more on needed business expenses, such as advertising.

Let your imagination run wild for a minute. Think of how much you sell now -- per day, week or month -- whatever is more convenient for you. Multiply that by two. Wouldn't it be great if that instantly became your new sales volume? How much more money would you be making? How much more would you be able to spend on advertising? How many more sales that additional advertising would bring you on top of that? With such snowball effect working for you, how quickly would you be able to expand?

And it all started with a $50 report on how to turn as many of your potential customers into buyers as possible.

What If My Report Doesn't Magically Increase Your Sales?

Smart business people don't believe in magic. I don't. And I sure hope neither do you, or you would be out of business, standing in the unemployment line instead of reading a website on how to set prices.

And even though I described a scientifically logical explanation of how it works, you might still be skeptical. It's OK, I'm used to it. Every single one of the sellers I told about my system was skeptical at first. But with my persistence, they all adjusted their prices and saw the results.

But since you are reading this website on-line and there is no way for me to come by your store to check up on how things are going, I'm going to offer you a guarantee:

If my report doesn't help you increase your sales and bring you at least $50 of pure net profit per day, then call or email me and I'll give you your money back. I won't ask you for a any kind of proof that it didn't work. Your word will be enough.

I can't guarantee the amount by which your sales will increase (I would be lying if I did without even knowing anything about your business), but I can guarantee that ordering my report and using it to adjust prices will not be a waste of your money. If it doesn't bring more income to you, you don't pay for it.

I give you two months since the day you order the report to adjust prices and see the increase in sales. At any time during these two moths, you can contact me and get a refund for the report.

Why Two Months?

The reason for that is:

The first day, you'll notice an increase in sales, but you will be skeptical. Just like I was. You'll keep thinking that it's probably just a coincidence. And that the sales will drop the next day.

The whole first week will seem weird. You'll constantly keep thinking that tomorrow the sales will drop.

After about a month, you'll start to come down and accept the reality that your sales are going to stay at a much higher level than you expected.

You might relax quicker or it might take you longer, but based on my experience it takes about a month to get used to it.

It will take a month to six weeks for you to truly believe your eyes. But you probably won't be able to change all your prices in one day, right after ordering my report, so I add some time for that too. Two weeks should be enough even for a business with lots of items. That gives us a total of about two months for you to adjust your prices (at least for some items), see the results, and believe that the results are not just a coincidence.

In short, if during the first two months after you order my report, you don't see a substantial and consistent increase in sales day after day and week after week, then contact me and I'll give you your $50 back.

Even though $50 might not be a big deal for a business owner, it's still money. And nobody wants to throw money away. So I want you to know that you always have the option of getting your money back. I believe that giving you two months is fair.

What's the alternative?

You are a business person and I'm a business person. So let's see what are the alternatives? Since this is a unique report, there is no way to "shop around" for something like that. That leaves you with only one other option: do everything yourself.

Let's look at it from a business perspective. It took me thousands of dollars to pay my part-time helpers and to rent expensive servers. It took me months of my time to get the raw data, process it and make any sense of it. After that, it took me even more time to extract the best price points and compile a report.

There is no reason it would take you any less time and money than it took me, if you were to do it all yourself. So it simply makes good business sense to spend $50 on my report instead of spending thousands trying to do the same thing from scratch.

And let's not forget about the lost opportunity cost here. If you wanted to gather all that data yourself, you would only have it ready 8 or so months away from today. During those 8 months, you would be losing money every day because your prices would still be set the old way. But by ordering my report, you won't have to wait months to start using this data to increase your sales. As a matter of fact, you'll be able to start changing your prices in just a few minutes from now.

The report is a PDF file (269kb file size) 21 pages long. Covers all prices, but still compact enough for you to print out and carry around while pricing the merchandise. It consists of tables full of analyzed data. And everything is formatted in a way that makes it easy to use in real-world retail environments.

So... why $50?

So why didn't I set the price to some "good" value in hopes of selling more copies of my report, but priced it at $50?

There is no science behind it. And I'm afraid that the reason behind it is not that exciting.

I thought about it long and hard. I could've set the price to some odd value which I know is much more likely to make people buy the report. But the truth is, after having been so frank with you throughout this page, as one seller to another, I'm just not going to stoop so low and try to play pricing mind tricks on you. Not right after explaining to you how it all works. I'm not going to sacrifice my integrity even if it costs me lost sales. We are both sellers, and my price tag of $50 flat is about respect for you more than anything else.

P.S. If you need any help with your order or if you have any questions then don't hesitate to call me at 302-476-2625. Just ask for Sam.

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