As we come to the end of the year business owners are doing a lot of planning for the next year (or they should be).
One question which is perennial is “how can I increase my bottom line?”
The standard answers are usually cost cutting and increasing sales. However, there is one very simple way. That is – increase your prices. The new year, whether it’s the calendar year or the financial year is always a good time to make these changes.
When I talk to business owners about increasing prices the normal response is “but I’ll lose my customers/clients”. What is universally found is that you won’t lose that many and the ones who do go are often those who are demanding, take a lot of your time and are slow to pay. So losing them is often beneficial. I know a number of people who actually increase their prices for this type of customer on the basis of; “if they’re going to be hard to deal with then I need to make it worth my while”..
A few years ago I wrote an article for Nett magazine called “The Price is Right”. In that article I went through some spreadsheets showing the impact on your bottom line by putting prices up and losing customers. It was amazing how many customers you need to lose to have a negative impact on your bottom line.
If you want to see the impact of this on your business you can download the spreadsheets here:
However, my point here is not simply to reiterate the earlier article.
If you want to put up your prices the important thing to remember is: your customers are buying an experience or a solution to a problem.
The only time price is an issue is if they can get EXACTLY the same somewhere else. For example, if you want to buy an iPhone (you need your head read – but that’s a different conversation) it doesn’t matter where you get it. It’ll have the same features, apps and capabilities irrespective of who you buy it from. In this case, the reason you buy it from one supplier rather than another may be purely price.
HOWEVER, if you look at your buying behaviour you’ll probably find that many other factors come into play. One of these may be convenience – you’ll pay a more if you can get it now rather than waiting a few days for it to be delivered even if that is cheaper.
So, when you’re working out what price to charge the important thing to understand is the client experience. Happier and more friendly staff will have a huge impact. Offering a support service (for a minimal added cost) may make you stand out. A guarantee always adds a degree of comfort. There are lots of ways to make your client feel appreciated and valued which don’t cost you anything.
A good example is the restaurant industry. You can pay $10 for a meal or you can pay $100. At the end of each meal you’ll (hopefully) not feel hungry any more. The difference here is really the experience. You expect a very different experience for $100 than you do for $10. Sometimes the $10 meal is appropriate and other times it’s not.
You can charge whatever you want and people will pay. The question you have to ask yourself is: “if I’m charging $100 am I delivering a $100 experience or a $10 one?” If you’re delivering a $10 experience people will very soon stop buying from you. If you’re offering a $100 experience and charging $10 you may very soon find yourself with a significant capacity issue and that can kill a business just as quickly.
Just remember, your customers are usually buying you (in some form). And so they will accept small price rises (10% a year often is accepted without question).
The final point is that if a good client is challenged by the increase they will often raise it with you and this gives you a great opportunity to connect with them on a deeper and more personal level. Depending on your situation you may be able to make special arrangements or you’ll often find that simply being open to the conversation will forge a stronger link between you.
To really understand your business and be well positioned for the new year I recommend the Key Person of Influence Brand Accelerator events in Melbourne (18th Jan) and Sydney (2nd Feb). Click here for details.
Good luck and may 2013 bring lots of success and fulfilment for you.