Raising prices can be scary. It creates lots of questions and concerns.
Will I lose customers?
Will sales go down?
Will a price increase be giving my competition a boost?
The reason to raise prices, of course, is to improve your profitability. The scary part is wondering whether raising prices could actually have the opposite impact. What if you end up hurting your profitability because customers don't like it and they vote with their feet?
How Do You Currently Handle Vendor Price Increases?
One of the questions I like to ask a business owner is:
"How do you handle vendor price increases on the underlying product or service that you sell (or resell) to your customers?"
Is your policy to automatically increase your price when your vendor increases the price you pay?
Let's say you are a retailer. You buy a product from a vendor for $100 and you sell it for $200. What happens when the vendor increases their prices and you now have to pay $110 for the product?
Do you automatically increase your selling price to $220? Do you wait a little while before increasing your prices? Do you leave your price at $200 in order to keep your customers happy?
Are Your Profits Under Pressure?
In many cases the same business owner that is afraid to raise prices will routinely (without blinking) raise their prices if their vendor increases prices. Their rationale is "Since my vendor raised my prices I have to raise my prices too. Otherwise, I am harming my business. I won't be in business long if I don't pass these increases along to my customers."
But what about the fact that many of your other expenses have been going up recently? The expenses of running your business include more than those that are directly related to the product or service you sell to customers.
And what about your level of profitability over the last two years? Are your profits under pressure from those rising costs?
Don't let the fear of raising prices paralyze you. Especially if you routinely "pass along" vendor price increases. Just use the same logic and give it a try. Then measure what happens after you increase your prices.
Raising Prices is a Powerful Tool
Pricing is one of the most important drivers of your overall profitability. You have to be constantly evaluating the value you deliver to customers, the price you charge, and your obligation to generate an above average profit in your business.
Remember, your financial objective in business is to create money (think about that for just a minute). J
Creating a healthy profit is step 1 toward building a business that does a fantastic job of creating money for its owners. It's part of the natural financial rhythm of business.
Maybe now is the time to raise some, or all, of your prices.
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