With the cost of living continuing to rise, many businesses are beginning to raise their prices in line with increasing costs. You might see how much people are struggling and feel reluctant to consider doing the same but it’s important to review your prices against your costs so you continue to be profitable. If you’re struggling to make ends meet or your profit window is shrinking, it’s time to review your prices. Equally, if you’re reading this and you aren’t sure whether your business is profitable, or you can’t remember the last time you increased your prices, it’s also time to review your costs and prices!
Why is reviewing prices across costs important?
It’s important that you know what your actual costs so that you can calculate your profitability and ensure that your pricing is at the right level. It’s also important because it gives you the opportunity to understand where you could, or might need to, cut costs. Even if you’re a freelancer whose product is their own time, you’ll still have costs that need to be covered within your rates. For example:
- Phone bill – device and airtime.
- Equipment (even if just a laptop).
- Insurance (and the list continues).
How will I know how to price things?
Testing different price points for your products and services should be done, not only to make the most profit but also to convert leads into customers. When pricing a product, make sure that your selling price is greater than it’s worth to ensure a profit, but don’t price a product low in an attempt to possibly generate more sales with a low price.
Pricing a product below the standard can end up putting off potential customers. People might think that there is something wrong, that there’s a catch in the fine print, or that the service or product just isn’t in demand. Don’t sell yourself short by cutting your prices so much that they become undesirable. Anytime you have a package and split pieces of the package out, it’s important to put this stand-alone piece at a higher price. This shows the value of the “bundle deal” and makes it more attractive.
Other ways you can raise your prices are:
- You could apply a price rise in line with one of the two inflation indexes.
- Calculate actual costs, then add a markup.
- If you’re a landlord, use one of the property benchmarks to determine increases (if not using inflation).
- Compare price (and offering) to competitors so you don’t over, or under, value yourself.
This will help you when justifying your price increase.
Justifying a price increase
This conversation is never easy to have with customers. After all, who wants to hear that the product your business relies on is going to cost more? It’s important that you communicate with your customer service team about how to tell your clients about this change and give them the answers to the questions the customers might ask. Not all customers will welcome the price increase, but that doesn’t mean it’s the wrong decision. Sadly, no matter how well you communicate it, your customer service team should expect at least a few negative reactions.
How should I announce a price increase?
- Ensure the entire company is aware of the price increase before announcing it to customers.
- Contact the customers directly.
- Prepare customers; give them advance notice.
- Explain the reasoning behind the price increase.
- Allow customers to reach out with further questions or concerns.
What if my customers don’t like it?
Focusing on retaining customers is important because the probability of selling to an existing customer is 60-70% compared to the 5-20% chance of selling to a new prospect. Unfortunately, not all of your current customers will be able or want to pay more. That’s okay, it just means you’re not right for them. Try out the new pricing and see what the reaction is, and make sure you’re not out of pocket.
If you’re wanting to increase your prices but aren’t sure where to start, contact us today to arrange an appointment.