Repeat after me: The fastest way to increase profits is to raise your prices and start charging what you are worth! This has been a very hard one for me to learn. I always worry about losing the sale because I have not adjusted my mindset.
Every successful business owner has a particular skill or God-given talent. When this skill or talent is combined with a passion to solve a customer’s problems, you really have something special. The key is communicating the value of your service to your prospect (and to yourself) in a way that convinces them that your price is actually a bargain for what you are providing.
Remember, when your price is substantially higher than the competition, your value added must also be substantially higher. Based on this statement, you must first discover what your prospects and customers value most. What will they pay extra for?
I’m in El Paso where there is a large choice of good Mexican food restaurants. So if you own one, how do you not sell based on price? There is one restaurant we frequent that has really good food, an efficient staff, and owners who work hard to make you feel like part of the family. This is a good start, but it is hard to charge extra for this, since the customer expects this. What they do differently is that they have improved their kitchen process to the point where you can be seated, place your order, and be served in about 10-15 minutes. They started marketing this fact to the surrounding businesses whose employees only have a limited amount of time to eat lunch. That type of customer is willing to pay a premium to be able to eat a good quality lunch in a reasonable amount of time.
So in order to raise your prices in any industry and in any economy, you must:
- Evaluate the product or service you provide and write down in detail how this product or service benefits your customers.
- Set your price based on this perceived benefit. What is routine to you because you know your product or service so well often looks like magic to the customers. I can easily do your tax return, set up QuickBooks for you, create a business plan, and consult with a business owner on increasing sales and profits. But my wife has threatened to lock up my toolbox at home. It is much cheaper (and less painful) to call in a plumber, electrician, carpenter, or handyman than it is for me to try to fix something myself. I will gladly pay someone so I don’t have to mess with it!
- Regularly emphasize this benefit—before they are customers, when they buy, when the product is delivered, and periodically after the purchase. Don’t assume they will remember.
- If you are not getting complaints about your pricing, you are not charging enough. About a fourth of your prospects should initially have a problem with your price until you sell them on the value.
- If a customer walks away when you increase your price, let them go. Find someone who appreciates the value of what you sell. Watch the video below and see how you can lose a third of your customers from a 25 percent price increase (assuming a 50 percent product cost) and make the same amount of profit with less stress! You will also see how a 25 percent price decrease requires you to double your customers, and how a 10 percent price cut requires a 25 percent increase in items sold just to break even.
- Don’t sell a commodity. See our article “Never Sell a Commodity” in this issue for a longer discussion on how to separate yourself from the competition.
- Become the expert that others say their friends must know. You can accomplish this using blogs, digital publishing, seminars, and public speaking. Publishing this business magazine and our Kindle books has gone a long way toward setting us up as the “small business” experts in our market. Fact: Experts can charge more and people are very willing to pay for their expertise.