Is the Price Right?
We had a great discussion this morning at a BANG! meeting about the need and the fear of raising prices. The general consensus was that everyone had entertained fears that a price hike on their services would drive away clients.
We also generally agreed that the reality, assuming you had quality service that wasn’t a commodity, was that not only could you raise prices, but potentially you should be raising prices.
Depending on your target demographic, there’s definitely a psychology of pricing for premium products that favors higher prices. (say that 3 times fast…).
In other words, if your target is the upper end of the market place, they will respond favorably / buy more if your prices go higher under the assumption that Quality is indicated by price and you get what you pay for.
There’s a good article on this topic from Fortune Small Business (on the CNN website): Raising Prices, Keeping Customers
The article covers the idea mentioned above for luxury or premium products and services, but also notes that any product or service that’s not a commodity can likely support a reasonable price increase.
Many business owners assume that any price increase will drive customers away. But consultants who work with small companies say they often under-estimate their pricing power.
Another thing to consider is that a price increase will drive exponential value to your bottom line profit margins.
First, experts say, remember the rich payoff you can reap from even a small price hike. If your firm enjoys, say, a 10% profit margin, a mere one percentage point bump in the price of your product will deliver a 10% hike in profits.
I’m not saying that you can do whatever you want and it’s all sunshine and roses, raising prices is a risk, and the odds are you could lose some percentage of your clients / sales. On the flip side, losing your profitability slowly but surely isn’t a good way to go either.
What’s the right way to do this? The beauty of a small business is that as the owner you’ve got all the cards and you can try different things out.
- Stay up to date with your industry and your competitors. You don’t have to be at or below their prices, but you should at least be aware of where you are and comfortable that you are better or unique enough to rationalize it.
- If you’re like most of us, you are constantly battling demons of self-worth. Your clients love your product and your company – they really won’t mind a price increase. Don’t let your own thoughts on money stand in the way of your pricing.
- Are you or do you have the opportunity to present yourself as the ‘Premium’ solution? If you can establish that niche in the marketplace, all of the sudden your bottom line is going to start jumping up quickly.
If you’re starting to feel squeezed from a profit perspective and you’ve been holding the lines on prices for a while, it’s time to do something about it. Do your research, come up with a plan and put it into action.
What are your thoughts on pricing? Do you have any stories on what’s worked and what hasn’t?
Shawn Kinkade www.aspirekc.com
4 thoughts on “Is the Price Right?”
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Shawn,
Always an interesting topic of discussion with business owners. I agree about the irrational fears. These are ones we faced in our business early on, but once we gained the confidence in our process we’ve been able to more than double our prices in the last two years.
From a story standpoint, we’re having great success recently with a new client who provides a unique service in the sense that he helps create ambiance at events. Since he started the business he has been struggling with what price to charge and he’s almost embarrassed to ask for more money. One of the first things we’ve worked with him on is to increase his asking price by at least 50%. The rationale we’ve used is that for the events he’s part of, the cost of his service is minimal compared to the overall budget so a 50% increase won’t even be noticed. Being a good client, he’s taken our advice over the past couple of months and his average price per job has nearly doubled compared to where he’s been historically. And he hasn’t lost a job on price yet. In fact, anytime someone wants to negotiate his price, he now has some wiggle room and where he ends up is still significantly higher than where he was in the past. Bottom line, more profit for the same or less work. What a great way to work smarter vs. harder!
-Adam
Great Illustration Adam – thanks for sharing!