As a business owner, you’re constantly looking for the best possible ways to boost your profits and maximize your bottom line. Some of the best experts in the world will give you innumerable ways to make this happen, and many of them are valid, but there’s one that they’ll often overlook: raise your prices. However, you may not know how to raise your prices, and that’s what we’ll discuss today.
At first, this may seem like a crazy idea. In the face of a major recession, a global pandemic, and virtually every bit of business advice you’ve ever heard, how could you possibly justify raising your prices? Today, we’re not only going to discuss the ways in which raising your prices can help you but also how to raise your prices properly. It’s a delicate process that takes a lot of careful planning, but if you manage to pull it off, you will learn how to raise your prices dramatically.
How to Raise Your Prices: Why Raise Them?
It may not seem like it at first, but learning how to raise your prices is the single fastest way to increase your bottom line. How is this possible? We can take a look at some math to prove the point.
Let’s say you have a profit margin of 40%. Now, let’s say you increase your prices relatively substantially—10%, we’ll say. If you do this, you can now afford to lose one in five of your customers without hurting your profits. Of course, this example is carefully calculated, and the formulas may apply differently to you, but this just goes to show that your business likely has much more flexibility than you think.
There are other benefits to raising your prices, the largest of which is a more positive perception from your customer base. Competition is the heart of the business world—lowing your prices to compete with everyone else is a universal strategy.
While it’s usually a solid plan, you won’t be able to stand out unless you have an outstanding marketing plan, which, unfortunately, most people don’t. Higher prices are a declaration of the quality of your goods or services, and if you deliver on quality, the price won’t be an issue for your customers. At the same time, if competition truly is a factor, you can price match certain products or services to draw people in, and get them hooked on more expensive goods or services later.
How to Raise Your Prices: Get the Timing Right
This is less about what’s going on in the world and more about when and how you implement your price increase. You won’t want to make the change suddenly, and you also don’t want to do it out of nowhere. With the year winding down, it’s a good time to point out that a new year is always an excellent opportunity to implement price increases. Increasing your prices at any other time, especially in the middle of a project or during a particularly busy season, will throw your customers and clients off, potentially driving them away, and that’s the last thing you want.
How to Raise Your Prices: Understand the Value of Your Product or Service
Confidence is everything, even in business—but it needs a backbone. You should always run your business with confidence, but you have to have a solid grasp on how much your goods or services are actually worth. If you don’t understand the value of what you’re selling, you won’t learn how to raise your prices the right way, either because you’re under-valuing your product and missing out on extra profit, or you’re over-valuing it and driving away too many potential customers.
At the end of the day, you’re selling benefits, and the benefits of what you’re selling are what makes you stand out. Find your niche, explore what makes you different, and use it to your advantage. Understanding the value you contribute as an entrepreneur is the basis of how you’ll be operating your business. One bit of advice that I like to give to my clients is, “Don’t let yourself be compared to others.” If your clients can differentiate you in a positive way from all of your competitors in the field, they’ll choose you every time, and what’s more valuable in the business world than loyalty?
How to Raise Your Prices: Do it Incrementally
This ties into what we said about timing earlier, but if you want to know how to raise your prices properly, heed this advice above all else: don’t implement a huge increase out of nowhere. The 10% example from earlier is a metaphorical case. In reality, you’ll want to very slowly increase your prices on a yearly basis. Every business is unique, and you’ll have to determine what works best for you, but ideal increases in price tend to be in the ballpark of 2% to 5%.
You also don’t want to announce a price increase too broadly—increasing your prices will inevitably lose some customers here and there, but announcing an increase outright will scare away even more. Be subtle about it—in a recent livestream, I read a letter from a landscaping company I worked with to illustrate the best way to make this happen.
With that being said, you can adjust prices on a case-by-case basis. For long-time customers, or for clients going through a hard time, you can offer special discounts or loyalty programs to help keep them on board. Additionally, if you don’t want to outright increase prices on your existed goods or services, you can offer new ones for higher prices and direct your customers in their direction.
As I stated earlier, increasing your prices is a tricky process, and no one rule applies to everyone. That being said, if you don’t know how to raise your prices properly or don’t feel confident enough to do the math yourself, hire an expert CPA like me to help you. Experts like me know how to implement changes like this carefully and correctly. Hopefully, these tips can help you maximize the value of your business, and as I always say: “Let’s make this our most profitable year ever.”