Are you feeling the pinch from soaring prices for raw products, energy needs, or services that keep your business running? As much as you may want to avoid passing along those costs to your customers, it may be time to reevaluate your prices.
Here are five questions you should ask when deciding whether or not to raise the price of your product:
Are you hitting rock bottom?
Rock bottom prices can fuel sales, but more often than not, they prevent a business from sustaining profitability. If you are caught between passing costs along to your customers or watching your profits fall and putting your business at risk, it’s time to take a hard look at your costs and your pricing structure. To make an informed decision, examine management, your fixed and variable costs, the marketplace, the quality of your products and services, and your value proposition.
Are you managing efficiently?
Raising prices is not the only way to increase profitability. Consider management improvements that may boost the bottom line immediately. Look for inaccurate billing and time keeping, high accounts receivable, workflow bottlenecks, high employee turnover, poor cash flow predictions, and other indicators.
Have you calculated your fixed and variable costs?
Know your costs and price accordingly. The price of your products or services must reflect a realistic calculation of your costs. The cost of everything from rent to energy has climbed significantly. If your costs have gone up but prices have not, you’re working just as hard for less money. Examine the costs of labor and overhead and make sure your pricing reflects today’s reality. What margin do you need in order to make money?
Did you research the marketplace and competitive price points?
You may not have to increase all of your prices. Be judicious in your choices. Compare yourself to your competitors. How do your prices stack up against their prices? If yours are significantly lower for a product or service of comparable value, make an adjustment. Consider quality! A BMW and a Chevy don’t sell for the same amount for a reason. Quality, perhaps more than any other variable, determines price. In fact, you may lose sales to competitors if your price is too low—customers may assume your quality is lower. If you have invested in quality improvements without adjusting your price, you may be cheating yourself. If you offer a higher standard of service than competitors, at a much lower cost, it’s time to change.
Have you developed your selling proposition?
What differentiates you from your competitors? You should always be adding value. Be prepared to point out the advantages of your services and products to justify an increase in price.
If you do decide to raise prices, don’t be defensive — be prepared. Price increases are a fact of life and a legitimate response to increases in costs or innovations in quality. Reasonable customers will understand. Depending on the nature of your business and your relationships with certain customers, you may want to provide advanced notice of a price increase. If you do notify them in advance, explain the reasons for the change.
Remember, there’s always someone cheaper. Clients who are looking for lower prices can and will find them. Remind clients that they cannot find the same level of quality, service, and dependability elsewhere at your price. If increased costs or improvements in quality justify a price increase for your business — do it. Chances are that it will be more significant to you and your customers.
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