For business owners, pricing is one of the most difficult aspects of doing business. It’s easy to look at the negatives and decide not to raise prices. However, sometimes it is necessary in order to maintain profitability and keep your business running. Here are some factors to consider when making the decision to increase prices.
- Our business is too competitive to increase prices.
- Our customers/clients are used to our pricing.
- Customers are too price-conscious.
- We won’t be able to get new customers/clients.
- We are known for low prices.
- We have a lot of repeat customers, they won’t pay more.
Some businesses choose to raise prices when costs go up. This ensures that they are maintaining their profit margins. Others wait until they are confident that their customers will be willing to pay the higher price. And still others base their decision on what the competition is doing.
On the one hand, raising prices has a lot of benefits. Profits will increase; and the price of the business will increase based on the increase in sales and profits. Funds will be generated to do that advertising or promotion you have always wanted to do. With increased profits you can hire that extra salesperson you know will increase business; you can install the technology you know will increase service and lower costs.
Ravi Mohammed points out in his book, The Art of Pricing, sometimes it’s necessary in order to increase your bottom line. A 1% price increase on a business doing $5,000,000 a year is only $50,000, but that can make a big difference. And on a smaller scale, a 2% price increase on a business doing $500,000 in sales would bring in an extra $10,000. So it’s not always about increasing prices across the board – sometimes it’s about raising prices on fast-selling items more than slow-moving ones. By doing so, you can test the waters and see how your customers react. Who knows, a little price increase might be exactly what your business needs.
You may decide not to increase your prices, but at least you have taken a look at your pricing policies.