Increasing Your Prices: A scary but highly successful strategy
Are you struggling to increase your average sale? The easiest way is to increase your prices yet, many business owners and managers have trouble with this. They fear that if they increase their prices their customers will disappear.
The truth is, they won’t.
On almost all occasions a price increase can actually increase your sales volume.
For instance, an Australian based company with $9 billion in revenue was having challenges with its profit margins so they decided to increase their prices. To do that, they categorised each of their 800,000 products as to how well they were differentiated in the market. With products that had a significant point of difference and little competition, they increased their prices significantly. With products that had lots of competition they increase prices just slightly. The result was a $200 million increase in revenue.
Price is determined by perceived value. So if your product or service has a high perceived value you can get away with charging higher prices. However, ironically, your price point is actually a contributing factor in the perceived value of your product or service – that is, higher priced products are generally perceived to have a higher quality. Likewise, there must be some point of differentiation between your product/service and that of your competitors in order to justify a higher price. However, it’s important to note that this point of difference need not be about your product, for example you may sell a product similar to your competitors but offer amazing service.
The most important thing to remember is that you should raise your prices to match the price that the market is willing to pay for your products/services.
Not doing so represents wasted profits and opportunities for transforming your business into something extraordinary.
Here’s a few examples:
- A training company sold subscriptions to their new specialist industry magazine for $37. Once it was published they increased the price to $47 and the sales stayed the same. They then increased it to $87 and the results skyrocketed.
- A builder decided to take the bold move of advertising to the world that he was the most experienced builder in town. In his ads he also included the reasons why he was. As soon as he did that his business went the through the roof – despite being the highest priced builder in town.
Will raising your prices see you lose some of your existing customers? Yes. Will you also lose some potential sales? Yes, without a doubt. But here’s the good news: you’ll be getting rid of those pesky, time-wasting looky-loos and nuisance D-class customers. Your overall sales revenue will still increase (usually quite significantly) AND you’ll have more time to spend working with your favourite clients and/or you’ll be attracting your ideal, higher-value customers.
10 Steps to Follow before You Roll out a Price Increase:
- Know your value proposition – Make sure that your price is in direct proportion to perceived value. The more educated your customers are on the value of your product/service the more they are prepared to pay.
- Group your products/services into categories – Divide them up into groups dependant on the uniqueness of the product or the value they deliver to the customer.
- Talk to your salespeople – They will be able to provide you with valuable feedback on what the market will bear.
- Get feedback from your lost prospects and customers – Find out why they left. Was it price or the amount of value they received?
- Work out your total estimated profit at each price point – This works best by doing a % and $ value increase/decrease across a range of price points, quantities and total revenues.
- Identify ways to educate on value – Spend time evaluating how well you’re educating your customers on value they are going to receive.
- Increase the value you deliver – Make sure the price you sell your product/service at matches the value the customer receives.
- Test the price increase – See what the reaction is when you test the new price to a small random sample in your database.
- Develop a communication plan – Communicate your price increase to customers in the right way. Give reasons.
- Inform customers – Inform your customers if the impending price increase. Position it as a positive for them.
For more questions or advice, please give us a call on 1300 85 64 77 or contact us. And remember: you’re probably more scared of a price increase than your customers are!