4 tips to Raising your Prices (even just a little bit more)

About this time of year each year I raise my prices, it’s my birthday and that seems as good a time as any to do an annual review (plus September is nicely separate from year end, budgeting, summer holidays etc etc).
Everyone has to increase their prices eventually, or go out of business, your clients and customers know price rises are part of life, so while you may get one or two grumbles, and even a few people who walk away, the tough facts are you are in business to make a profit, and without price rises your profits erode.
First off, unless you are in a business that only sells high volumes of very cheap items, don’t be avoid raising your prices because you “might” lose some customers. Start by asking yourself are the people who are most price sensitive, and are likely to leave as a result of a small price change, really the ones you want to keep, or are they the type of people who make your job un-enjoyable? If they are the latter perhaps it is best you let them go anyway.
Consider this analysis:

• If you raise your prices by 2% most likely no-one will object (or even notice).
• If you raise your prices by 10% then 10% of your customers must leave you before the price hike becomes detrimental.
• If you raise your prices by 50% then HALF your customers need to leave you before it affects to your bottom line.

At the end of the day you are unlikely to lose more customers than the benefit of the price rise, AND without a price rise you may well lose your business!
On the other hand, if you are in the business of selling large volumes of low profit items, these will most likely be very price sensitive so raising your prices will more than likely significantly impact your customer retention to a greater extend than those businesses where the service or product includes an element of quality, service or specialty. That said, it is not possible to stay in business forever without raising your prices – eventually you will need to get a new product (selling at the right price), or go out of business. Both these choices are good business, a business that has had a great run and sold a gazzilion Rubics Cubes for $3 each, probably also made a motza in the process – and as owners you are now quite happy to either shut shop, or move onto smurfs, with a higher profit margin instead.

Prices reflect costs, consumer knowledge and value; all of these change all of the time.

Your “ideal price” is most likely changing daily. Yep, I know that seems a lot, but how often do your costs, or customers’ perceptions vary? – I’ll bet at least one of those changes pretty much each day…
So, given that eventually all prices need to increase let’s consider the best ways to go about charging more. It is not difficult to build yourself a reasonable lift in your prices when you make sure you cover the Four Cs:

1. Cost
2. Customers
3. Competitors
4. Contents

4 Cs you need to Charge More

Tip 1 – Understand your Costs

And I am pretty sure, unless you are a fresh food producer selling at the wholesale market, your prices stay the same most of the time, and possibly year in and year out?
Always have a very accurate understanding of what your costs are, and therefore how to price to protect your profits. Most likely your costs creep and move all the time – even something as simple as your electricity bill increasing is cost creep at work. This is exactly the reason you need to hike your prices too. Here are several methods available to help you drill down from the big overall numbers in your P&L to the cost of each item produced – Pricing Products and Services
WARNING: Not applying any thought or effort to setting your prices is perhaps the simplest way to go broke. Pricing everything to sell, irrespective of what it costs to produce and deliver in your business, is a recipe that will eventually send you under!

A good example of how to inform people is this simple email, or sign in your shop:

To be able to continue to bring you the fabulous products we know you have come to love, we are going to be charging slightly more from 1 July (provide details). We intend to minimise this impact on you as much as possible and look forward to your continued support. Should you have any questions please don’t hesitate to ask….

A price rise can also be used as a good opportunity to reward Customer Loyalty: Customers love to feel special and unique. If you have a couple of customers you really worry are likely to be price sensitive offer them a specific loyalty discount, or the old prices for an extra few months. This is a good way to build long-term relationships with loyal customers.
When your clients and customers value your product and relationship they will support your decision to increase prices a tiny bit, because no-one else is offering is exactly the same as you are; reward customer loyalty and maintain outstanding customer service to keep up with those gains.

Tip 3 – Don’t Copy Your Competitors

The simplest, easiest, and therefore generally the least accurate pricing method, involves discovering what your competitors are doing and then setting your price to reflect theirs. This is a DANGEROUS APPROACH as it assumes your costs, and the return you need for your risks, are exactly the same as your competitors…. That is really, really unlikely!
Your business; your investment; your risk; your needs; therefore YOUR PRICE!
On the flip side, it is important to understand exactly what your competitors offer for the price their customers pay; what their Clients both Want and Need, and how that differs from the Wants and Needs of anyone who buys from you. The right knowledge enables you to differentiate your value proposition – ideally you will work out a business model that enables you to deliver to your customers for slightly less cost, and at a slightly higher price than your competitors.
This step is also important to prevent pricing yourself out of your market – only a very rare business that is able to have a similar offering, charge far more than the competition, AND stay in business for long. So, communicate your specialties – advertise the uniqueness of your products and services to attract and retain people doing business with you.

Instead of using a market driven approach to pricing, switch to using a value approach – make sure the content of your offer is clearly understood; your value proposition is front and foremost. Leverage the perception of value so you can hike prices accordingly. This takes a more holistic approach to customers needs and wants by considering customer feelings – Do they like you? Is the design appealing? Does your offering make them feel good?
A great example of how this method can work is fair trade coffee – it is consistently more expensive in a bag and in a cup. Ten years ago the market for coffee seemed pretty clear, there were lots of competitors and customers so the price was very stable and the profit margins pretty consistent. But, by raising market awareness as to the conditions the coffee was grown and picked in and offering a more expensive alternative that drove to prevent the bad conditions the market was opened up to a more costly product. The benefit to a customer of fair trade coffee is exactly the same as that of regular coffee – they are as tasty and satisfying EXCEPT the fair trade coffee has one extra value proposition – it also enables the customer to directly support poorly paid communities; there is an added value of ‘feeling good’ that enables a higher price to be charged.
If you are a start-up building a value perception recognise that can take a little while, especially given ‘value’ for services is usually built on trust and testimonials. Having a go-to-market strategy that incorporates a ‘trust building’ and ‘value demonstration’ component will be necessary to implementation of this kind of pricing. So start low, and then hike your prices regularly as your reputation and customer base improve.

Tip 4 – Rethink Your Offering Contents

Changing how you package and price your product or service is a very common way of making more money from customers without an apparent rate hike that may ruffling feathers. Offer a slightly different product or services for the same price, here are some ways to do this:

• Cross-sell Your Services – “Would you like fries with that?” Cross-selling is an easy way to increase sales of related services and meet your customer’s needs. For example, a spa business could tag on a range of manicure services to its menu of massage services at a packaged price.
• Tier Your Pricing – Offering multiple price points across your business is a great way to up-sell products and services without raising prices. The plan here is that the tempted consumer will opt for the higher end of the tier. For example, a coffee shop may offer the following options:

  Products	Services
  Cappuccino @ $1.50	2 hours @ $85 per hour
  Cappuccino with a Shot of Syrup @ $2.50	5 hours @ $75 per hour
  Cappuccino with a Shot of Syrup and Cream @ $3.50	10 hours @ $65 per hour

  The variations are tempting, the value is clearly advertised and the decision to spend more is ultimately in the hands of your customer. The same basic, middle, and premium tiers can also be used in among consulting businesses.

It is extra important to understand the difference between your mark-up and your margin, especially when you are bundling products – a bundle will ideally include a mix of high and low margin products so both your business and the client benefits from the bundle. click here – for clarification.
So there you have it, 4 ways that will help you raise your prices without upsetting anyone (except perhaps your competition).