I have the answer to all your business problems and prayers. There is one really easy think you can do to go from struggling to making consistent and significant profits. It’s so simple anyone can do it, even you. But you probably won’t do it. You’ll know you should, but you’ll still have doubts. I’ll reveal this in a moment.
I’ve helped hundreds of thousands of start up and scale up business owners in the last 11 years, and most of these people initially think you can’t just increase your prices overnight. Why?
- They think they will lose most of their customers
- They think their customers will complain
- They don’t think it is fair to their customer loyalty
- Other fear they don’t yet know is real
They only think of the cost of increasing their prices, and not the cost of NOT increasing their prices. After all, Apple and Rolex seem to have no problem with it.
So consider these 8 points and then test the following 7 points to significantly increase your prices (or face the costly consequences)
1. 10-20% swing won’t impress you much
If you had assets or investments, and they went down 10-20%, you probably wouldn’t go into a fit of panic or rage. Sure, you wouldn’t be happy, but you could probably handle it and control your emotions well enough not to make fashion selling decisions. If they went down 50% that could be a different story. And in reverse, if they went up 10-20% you probably wouldn’t be overly manic, excitable and plan your retirements. So a 10-20% value (or price) swing wouldn’t likely bother you too much. And so it likely is with your clients and customers if you increase your prices. Would a tenant move out for a 10% rent rise? Probably not because inconvenience and removals could cost years of that extra rent.
2. Most of price rise is profit (overheads covered on current pricing)
Most people don’t realise that if you have a 10% profit margin (let’s say you make £10 on every £100), if you increase your prices by just 10% (assuming no extra overhead) you double your profits with such a small price increase. All your overhead, staff, loan, premises, stock and more costs are currently covered (or not quite) by your current pricing, so all (most) of the price increase is profit.
Every 15 years or so inflation halves the relative value of money. This means your prices need to have risen around 100% in that time, to not have risen at all in relative terms. So every 15 years you need to 2x your price to 1x your price. If you don’t meet this rise, your suppliers will and the costs or goods and services to you will rise, but your prices won’t and your profit will get eaten two ways, lower pricing and increased cost, which is the direct opposite of what you want to do.
4. Would you really lose all your customers?
If you increased your prices, would every single one of your customers really flock to your competitors? Really? Sure, you might you lose the demanding ones; the ones who want £10 for £5, but that could be a good thing (next point). Not all customers cost you the same overhead, because some customers are a huge drain on your time, resources, staff, customer service, refunds and cost you a LOT more than others (even in commodity based business). one customer could cost you 5 or 10x what another does, and as such the least demanding one has a huge profit margin and the most demanding one has a negative profit margin. So you know what you’ve got to do.
5. You won’t be able to grow or sustain your enterprise
If your margin isn’t good, because prices are too low (or costs too high), then you can’t sustain your business, and it will go bust, and the very customers you wanted to give a bargain or great service to end up losing out. Or future customers lose out. There HAS to be fair exchange, balancing the selfish and the selves, the profit and the service, the price and the value. That means depending on your business niche and scale between 5% and 50% net profit margin sustainably, even and especially through leaner times.
6. If prices are higher, service & value are better
Or at least they should be. if you have fair profit margin you can give a better service, reinvest to innovate and improve your product, and overdeliver. Price is what you pay, but value is what you get. You get less complaints and more gratitude the more value you can offer, and you can’t do that without any margin. Rolex put their prices up regularly, sometimes as much as 10% in a year. The Daytona has almost doubled in price in the last 8 years yet the waiting list to get a new one is 9 years or more.
7. You will resent customers if your prices are too low
When I was an artist, struggling to sell my work and make any money, I had guilt around pricing my work. I’d sell my art for less than it, and I, was worth, then I’d be bitter towards my customers. But they aren’t going to offer you 50% more than you price your products. If you increase your prices you can always discount them. The low prices that cause resentment become a self fulfilling prophecy in that you don’t want to give service and gratitude, because you aren’t making any money. And none of it was their, or the markets fault.
So here are 6 ways to increase your prices and increase your profits without losing all your customers:
8. What about a higher end product?
Most people wouldn’t buy a £50k Toyota, so they created Lexus. Nissan created the GTR ‘brand’. Apple have the iPhone X. Giorgio Armani created Armani exchange at the lower end, and Collezioni at the higher end. If you are concerned about increasing your prices, create new models or even brands, to protect existing products and smash through price ceilings.
9. You doubt it, but you haven’t tested it. So test it
Unless you try, how will you ever know? Why not test a higher price point to a small segment of customers? You could sell newer or more expensive versions to proven, high paying customers, or even new ones. The market will tell you the optimum price, and sometimes that price is actually higher than you think. Low price means low value in the minds of many of your customers. You should always be testing new products and price points anyway, to innovate and grow through market and competitive forces. Do. Not. Wait. Or guess. Test.
10. Commodity or rarity?
Some people feel their product is commoditised, the price is set, and they couldn’t increase it as no one would buy their products. They could be in a very mature or competitive market. But even in those cases, you can usually find a way to increase profit margin. Airlines are price competitive, so different classes of travel and add ons were created. You could add bolt on services. Uber created Uber Exec and Lux. Or, you could simply move away from a commodity model into a rarity model, like Sunseeker, Ferrari or Audemars Piguet. You have a desirable product, finite supply and therefore virtually no price ceiling.
11. Invest in your brand & your equity (prices) rise
Market forces encourage reinvestment in quality and innovation to get the edge over your competitors and differentiate yourself in that marketplace. Do not get lazy or complacent, re-invest into improving and innovating existing and new products and services to increase the quality and value. As you do that will push the price up. But it only goes up if you push it up. ‘Brand equity’ is the goodwill value in your brand. how you do anything is how you do everything, so invest in brand value, reputation, customer care and service, as well as product improvements. Build your customer base and give value to your followers and fans, and they will be loyal in spending with you, even if you are more expensive.
12. Price escalation model
You could, if you are not that brave, increase your prices gently, around 5% a year. No one would likely bat an eyelid if it is that small and incremental. What’s stopping you? What’s the worst that would happen?
13. Increase VALUE first
Still here? Still not convinced to up your prices? Then try increasing value first, and you will see prices rise in alignment. You could offer extra care, add on services, better quality, or simply roll in all the above benefits in one go. But if you don’t then increase your prices you could have increased your costs and therefore reduced your margin.
14. Let your worst customers go
Not all customers have the same overhead costs. It is likely that 20% of your customers are causing 80% of your customer service, complaints and time drain. So let them go. Don’t offer them future products, let them expire gently. Once you do this your overhead will reduce and importantly, you will FREE UP time and space for higher quality, higher spending and less demanding customers.
As you raise your prices, incrementally of exponentially, your self worth rises in alignment. This in turn radiates gratitude from you to the customer, and back again. You then attract better people (staff, customers and partners) to your enterprise. That ‘goodwill’ goes back into the care or your product or service. And of course the reverse is also true.
What have you got to lose, other than your worst most demanding customers? TEST. Now. The answer to most of your business problems raised at the beginning of this article, and the easiest way to dramatically increase your profits is this: Put – Up – Your – Prices – Now.
Remember when a phone used to be free with contract? Now a new iPhone is over £1,000!