Small business owners often do not realize the great value of charging just one percent more for their goods and services. The fact is that many businesses could charge more than they do, but fail to do so. Owners often don’t realize how much of an impact this can have on their bottom line. Research shows that a small increase in what you charge for your goods or services can make a tremendous difference to your bottom line.
It may be tempting to maintain the status quo and not increase prices. However, in some cases, a small price increase can lead to a sizable increase in profits. For example, if you have a business with $70 million in sales, you could safely increase prices by 1.5% without causing any negative impact to sales or business disruption. This would leave $1 million on the table, which is a sizable amount of money.
Rafi Mohammed’s book, The Art of Pricing, provides a number of insights into this often overlooked area. One of the biggest fallacies in business is to believe that a product’s price should be based on the cost of the product. As Mohammed points out, this is not always the case. For example, McDonald’s makes up for profit shortfalls in other areas by keeping their entrée prices low. And while their profits on hamburgers may be marginal, their profits on French fries are considerable.
Mohammed has written about this subject. He believes that companies should always be looking to develop a culture of producing profits. Through better pricing, companies can increase profits and generate growth. Importantly, Mohammed points out that it is through what he calls “smart pricing” that it is possible to extract hidden profits from a business. Summed up another way, pricing couldn’t matter more.
It’s also important to remember that pricing is just one part of the equation. You also need to make sure your products and services are high quality and meet the needs of your customers. If you can do that, you’ll be in a good position to charge what you’re worth and reap the rewards.
Businesses that are able to increase prices gradually will be less likely to experience any negative consequences. At the end of the day, small changes to pricing can have a profound impact on a company’s bottom line. So if you’re thinking about increasing your prices, be sure to do your research first.