As the end of financial year rolls around, you may be reflecting on your offering and considering a price increase. Large corporates will adjust their pricing at this time of year. Should small business owners do the same? Yes.
You are in business to make money and to be profitable, am I right? At some point in the year, every business owner should be reviewing their pricing structure, and adjust when necessary.
I’ve heard many business owners suggest to me that if they raise their prices, their customers will leave. My response to that is: If you are demonstrating value in your product or service, they shouldn’t have a reason to leave.
If you are concerned that customers will ditch you then there are three potential problems with this:
- Your product or service isn’t embedded with value, and your only selling proposition is a low price point.
- You don’t believe your product or service is valuable.
- Your product is loaded with value; however, you are lacking in communication with your customers about this value.
So, here are some tips on why, how, and when to raise your prices.
- Are You Profitable? Firstly, check whether you’re making a profit on each item. If the product or service is not achieving the level of profitability that the business needs, or if the cost to deliver or manufacture the product has increased, then the sale price needs to increase.
- Are You Comfortable? If you are making a profit, then check whether you are comfortable with the level of profitability for that product or service. Does the pricing of the product or service recognise the amount of time, experience, or skills that you have acquired over the years to deliver this product or service? By now, you may have acquired much more credibility than when you first began. Have you also considered CPI?
- Understand Your Value in the Marketplace. Do market research and modelling. You certainly don’t want to out price yourself way above your competitors, neither do you want to undersell yourself.
- Stand Out. You should be constantly checking what your competitors are doing. Not just from a price point perspective. Evaluate their value proposition, their customer journey. Then decide and implement how you are going to stand out above the rest.
- Add Value. If you don’t believe your product has value, then how can you change that? Start listing your UVPs – Unique Value Propositions. If you feel your business doesn’t really offer anything that sets you apart, then think outside the box and increase your UVP.
- Don’t Assume. If you’re making assumptions on what people will pay, then you can change that assumption by simply asking your audience, your customers, or your clients what they will pay. You can run a survey, Instagram poll or ask a support network on Facebook, like the private Navig8Biz Academy group.
- Don’t Beat Around the Bush. You can’t simply raise your prices and expect that no one will notice. This is underhanded and not authentic. Be upfront but give your customers notice. Explain why there has been an increase. Communicate specifics like dates, products, and prices and brief reason. ‘An increase in raw materials’ shouldn’t come as a surprise to your audience.
- Maintain Trust. Provided the customer understands the value the business brings and there is a trusted relationship with the customer base, many loyal customers will understand. Whether you’re a product or service-based business, price increases shouldn’t be treated any differently.
- Power of Percentage. I do believe there is merit in using a percentage increase rather than a dollar amount increase when communicating this to your audience.
I recently had a conversation with my hairdresser who has had the same price point for several years. He was complaining about the fact that he takes a lot of time to do ladies hair and hadn’t raised his price for some time. Therefore, his profitability was reducing.
The thought of increasing his prices was confronting for him. I reminded him that I had using his services for 15 years, regardless of his location. I reminded him that I was now driving an hour to him to get my haircut.
My hairdresser wasn’t considering the value in his work, his expertise, or even in his personality. There is also high value in his client database. He needed to recognise that his price had to account for years of experience and skill, rather than just a dollar per hour value.
Raising your prices doesn’t always come easily, but with these simple steps you can make the process much easier for yourself and the customer.
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