Raising your prices is one of the fastest ways to improve your profit margin, but it isn’t something you should simply do. There are some important things you need to do first.
Research Your Market
Before raising your prices, take a few hours and research your current market.
Since you’ve been in business a while and have established yourself, you shouldn’t be undercharging your customers. But on the other hand, you don’t want to price yourself right out of business.
In addition to exploring what similar businesses are charging, also research your current customer base. Do your customers come to you because your services are cheap, or do they seek you out because they know they’ll consistently get high-quality work?
You want to use all of this information to put together a pricing policy.
How Much Price Resistance Will You Face
Price resistance sounds like something you should avoid, however, the opposite is true.
A lack of price resistance is a sign that you’re undercutting your services and that you should raise your rates ASAP. You can use price resistance to determine if you’re pricing yourself out of business.
- If your close ratio drops below a comfortable level, your prices are too high
- If clients who have always been loyal start using another business, you’ve set your prices too high for the type or quality of service you’re providing.
Many business owners experiment with how much price resistance they can cope. They slowly raise their prices and gauge how the price increase impacts their bottom line.
Offer Your Loyal Customers a Pre-Price Increase Sale
When you’re preparing to raise your prices, let your loyal customers know what you’re about to do and offer them a last chance at your current prices.
It will generate a nice surge in business just before the increase, and reward loyal customers while also marketing the increase.
Don’t spring the new prices on anyone. Run a small marketing campaign letting loyal and potential customers know that your prices are about to go up.
Don’t be surprised if this pricing marketing scheme actually triggers a surge of business. Clients who have been on the fence about utilising you will suddenly decide to because they want to get a good deal.
The surge in business creates a nice financial cushion if you encounter a small lull in sales shortly after the price increase.
Sometimes you get some push back from customers who aren’t happy that you’re raising the prices. It doesn’t hurt to share that you’re trying to cover the cost of doing business and also make a living from the work you’re doing.
It’s not unusual for customers to forget that your business is supposed to generate a profit. They’re often more understanding when they remember that you have operating costs and other expenses.
Raise the Prices in Increments
If you’ve decided that you’re really undercutting yourself and plan on a significant price increase, create a plant that allows the prices to go up gradually. This gives your current customers a chance to acclimate to the price change, decreasing the idea that you’re trying to gouge them.
There are two ways you can go about doing this. Some businesses choose to slowly increase their rates across the boards. Others keep the prices on some items/packages/services low, while steadily increasing the prices on others. They keep slowly tweaking the prices up until they finally reach the price point they’re after.
Contact us and learn more about how to keep your prices competitive and for ideas on scaling your business.