The cost of running your business goes up every year if you’re like most of our clients. The real question is when did you last increase your prices? We help our clients to understand their profit margins and the impact that has on what they can take home for themselves; but many business owners worry that if they were to increase prices, they would lose customers.
However, a customer will often be willing to pay a higher price if they feel they are getting value for their money.
3 tips to increase your prices
- Product bundling: A good way to increase your prices can be to bundle products or services together and offer the combined bundle at a price that offers value to the customer. For example, a phone contract might have a higher price but it may include a bundle such as unlimited calls and 20GB of data per month. The key is providing value to the customer. Very often you can add something into the bundle that has a high value to the client and a low cost to you.
- Differentiate your offering. Perhaps you could offer new online services to your customers such as an online portal or an app. Maybe you could create faster, more efficient processes so that your customers get a faster, more efficient product or service from your firm, compared to the competition. If you offer something that is seen to be the best in its class, that offers a benefit to your customers, you may be able to increase your prices.
- Test the pricing strategy: You can test a higher pricing strategy on new customers. Your existing customers might be resistant to a price increase but new clients will be unfamiliar with your pricing so they may accept the higher price if they feel that you offer more value to them than your competitors.
Once you’ve increased your prices
If you do increase prices for your existing customers, you need to communicate well and explain clearly why you had to make the decision to increase your prices. Do your market research to make sure that your pricing isn’t completely out of line with competitors. If your business is not significantly different to the nearest competition, you may run the risk of losing clients. What many of our clients found was that their competitors had increased prices, and thy hadn’t! The really interesting thing here is that they hadn’t been getting new customers, because customers are rarely as price sensitive as you believe they are.
Large sudden jumps in your prices will not go down well. Instead, introduce gradual increases such as 5% or 10% per year, depending on the type of business that you run. Everyone knows that the cost of doing business goes up each year. If you communicate with your customers, they may be more receptive to small increases.
The most important point is to monitor your gross profit margin, your competitor prices and to remember that happy customers who are getting great value are more likely to accept a price increase than unhappy ones.
How can we help you?
We can’t do your price increases for you, sorry. However if you want help to understand why you’re not making as much money from your business as you used to and what to do about it, we certainly can. Call us for a free, no obligation consultation. We understand money, you understand your business and we can help you focus on the right money decisions in your business.