Anyone that’s running a business wants to make more profit. There are only two ways to do this:
- Sell more goods and services (volume).
- Make more profit per £1 of sale (margin) either by increasing prices or reducing costs or increasing prices while reducing costs.
For the purposes of this article we’re going to concentrate on the “Increase Prices” part of the model (above) in our quest to increase profit margins.
Many business owners are afraid to charge “more” for fear of losing custom and putting people off buying from them, but the flip side of this is you may be leaving money on the table that could be in your bank account rather than in the customer’s pocket. I once heard this sentence and it changed the way I thought about pricing, it goes “Unless you are the most expensive in your field you can always afford to put up your prices”.
Well not everyone is comfortable about increasing prices, and as business owners we should be wary about the way we edge them up. There are a number of tactics we can employ to ease price increases into our business
- Introduce a new pricing structure for new customers only, look after your loyal customers, but let them know that you will honour the old price structure for as long as they stay with you. Should they leave and come back at a later date they will have to go on the new pricing model. Let them know you value their loyalty and are rewarding it, make it a good PR exercise.
- Begin to shift your overall product sales mix towards higher profit margin products and services, and start phasing out your lower margin items. Introduce higher margin new products that are perceived as higher value solutions for customers.
- Decrease the level of discounts you’re currently offering customers.
- Increase your minimum order volumes so that customers have to reach a higher threshold before they qualify for discounts.
- Increase your delivery charge and start charging for any additional special services related to delivery.
- Charge your customers for any engineering and installation services that you previously included as standard.
- Increase prices to cover for overtime or additional time needed to deliver rushed or very short notice orders.
- Start collecting and charging interest on overdue accounts from the last few months.
- Begin to write stiffer penalty clauses into all of your contracts. Think about it – your suppliers will almost certainly be doing this to you, so there’s no reason why you can’t be commercially more hard-nosed as well.
- Find ways to decrease some of the physical features or characteristics of your product, but continue to charge the same prices.
Times are tough, but we have to make sure we are getting a fair price in exchange for our services/products. Make sure you’re maximising profits so that you can continue to provide for your customers in the years ahead.
Check out my other articles on the subject:
- Reducing costs to increase profits
- Increasing sales
If you have any additional ways you have increased prices please put them in the comments. Hope you found this post interesting please subscribe to my newsletter so that you get to hear about my newest content as soon as it’s published.