4 tips to Raising your Prices (even just a little bit more)
About this time of year each year I raise my prices, it’s my birthday and that seems as good a time as any to do an annual review (plus September is nicely separate from year end, budgeting, summer holidays etc etc).
Everyone has to increase their prices eventually, or go out of business, your clients and customers know price rises are part of life, so while you may get one or two grumbles, and even a few people who walk away, the tough facts are you are in business to make a profit, and without price rises your profits erode.
First off, unless you are in a business that only sells high volumes of very cheap items, don’t be avoid raising your prices because you “might” lose some customers. Start by asking yourself are the people who are most price sensitive, and are likely to leave as a result of a small price change, really the ones you want to keep, or are they the type of people who make your job un-enjoyable? If they are the latter perhaps it is best you let them go anyway.
Consider this analysis:
- If you raise your prices by 2% most likely no-one will object (or even notice).
- If you raise your prices by 10% then 10% of your customers must leave you before the price hike becomes detrimental.
- If you raise your prices by 50% then HALF your customers need to leave you before it affects to your bottom line.
At the end of the day you are unlikely to lose more customers than the benefit of the price rise, AND without a price rise you may well lose your business!
On the other hand, if you are in the business of selling large volumes of low profit items, these will most likely be very price sensitive so raising your prices will more than likely significantly impact your customer retention to a greater extend than those businesses where the service or product includes an element of quality, service or specialty. That said, it is not possible to stay in business forever without raising your prices – eventually you will need to get a new product (selling at the right price), or go out of business. Both these choices are good business, a business that has had a great run and sold a gazzilion Rubics Cubes for $3 each, probably also made a motza in the process – and as owners you are now quite happy to either shut shop, or move onto smurfs, with a higher profit margin instead.
Prices reflect costs, consumer knowledge and value; all of these change all of the time.
Your “ideal price” is most likely changing daily. Yep, I know that seems a lot, but how often do your costs, or customers’ perceptions vary? – I’ll bet at least one of those changes pretty much each day…
So, given that eventually all prices need to increase let’s consider the best ways to go about charging more. It is not difficult to build yourself a reasonable lift in your prices when you make sure you cover the Four Cs:
4 Cs you need to Charge More
Tip 1 – Understand your Costs
And I am pretty sure, unless you are a fresh food producer selling at the wholesale market, your prices stay the same most of the time, and possibly year in and year out?
Always have a very accurate understanding of what your costs are, and therefore how to price to protect your profits. Most likely your costs creep and move all the time – even something as simple as your electricity bill increasing is cost creep at work. This is exactly the reason you need to hike your prices too. Here are several methods available to help you drill down from the big overall numbers in your P&L to the cost of each item produced – Pricing Products and Services
WARNING: Not applying any thought or effort to setting your prices is perhaps the simplest way to go broke. Pricing everything to sell, irrespective of what it costs to produce and deliver in your business, is a recipe that will eventually send you under!