The very thought of increasing your price typically brings on for most business owners the gut-wrenching worry of losing customers, losing sales and ultimately losing money.
But at the same time most business owners I meet also feel they are too cheap for what they provide their customers.
They mistakenly feel powerless as if they have a gun to their head and have no choice but to meet the market's expectation with their pricing, when in reality they are literally robbing themselves. Before I continue, consider this:
Sales Income = 100 items x $10/item = $1,000
Minus Expenses = $900
Net Profit = $100
Sales Income = 100 items x $11/item = $1,100 (Price increase 10% from $10 to $11)
Minus Expenses = $900
Net Profit = $200 (10% Price increase creates a 100% Profit increase)
Does that sound like a good reason to read on?
So how do you increase your price without in turn reducing your sales?
In a previous life, I helped multitudes of SME's increase their price by a relatively minor percentage that made absolutely no difference to their customers and yet made a significant difference to their own bottom line profit. And I am still regularly surprised just how many small businesses, who think they are similarly priced to the rest of the market, are actually under-priced for a variety of reasons. So this strategy does work, but it is a flawed, once-only, short-term boost to profits. And there is a far better way.
So, more importantly, how do you increase your price and achieve increased profits sustainably, year after year?
The answer is relatively simple.
Price is a direct reflection of “Value”, so the higher the value you get from a product or service, the higher the price you are prepared to pay…and conversely, the higher the price, the greater the expectation of Value. For example, I shop at a local organic shop. The big supermarket chains down the road are more convenient and significantly less expensive but the value I get from knowing my food hasn't been sprayed with chemicals means I am prepared to pay a lot more despite that the cost makes a significant dent in my weekly budget and means I have to sacrifice in other areas. And on a side note I've noticed recently a significant hike in their prices...and yet, for me the Value still exceeds the cost.
If you can’t get comfortable with increasing your price then:
- It is possible that this is because you believe your Value to a customer is not discernibly better than the Value they would get from one of your competitors. I've never seen a business that didn't have the potential to provide something uniquely valuable to their customers though I've seen many who didn't realise what they had.
- Perhaps more likely, you just don’t believe your customer or prospective customer will be able to understand and differentiate YOUR Value compared with the Value they might believe a competitor would provide them.
- Or most likely, you are convinced that most customers are not LOOKING for something different, just a cheaper price.
While all of these concerns are understandable, they are by no means insurmountable. There is a way to change this perception of Value from the customer’s perspective but it is NOT the customer’s responsibility. They are not just looking for the cheapest option...and if they don't understand the Value we provide, that is not their fault, it is OURS. It is OUR responsibility to firstly discover and then define our value in a way that enables a customer or prospective customer to make an informed decision. Make it clear the Value that you provide compared with your competitors.
In every business there are examples of customers who in spite of our inability to clearly convey our Value do actually get it and are happy to pay the price for it, but they are the very few who we celebrate loudly and often, because the vast majority of customers in most businesses simply remain with us through apathy until we either disappoint, or until someone else offers a better price or less likely, greater perceived value.
We can choose to keep these customers tied in through understanding the Value we provide, through delivering that Value consistently and through clearly conveying the Value we provide compared with everyone else in our industry. And we can attract more of the right customers at the right Price, a higher price that recognises our Value.