Alternative ways to raise your prices – and profitability! September 2012
In many business sectors, the difference between a winning and a losing product or service is how you price it. Sales tests have shown time and again that effective pricing is one of the most important factors which will determine the success or failure of a product’s sales, or even of the business itself.
However, there are several myths floating around about the pricing of products and services, and some fly directly in the face of popular thinking on this subject, and these may not reflect some of the advice you are getting or reading elsewhere.
Some of the myths that can lead to poor sales performance and failure include the following:
Assuming that price is the most important buying criteria for consumers.
This is absolutely not the case – consumers are generally a much more shrewd and informed bunch than that, and most of them know exactly what the meaning of value is.
Needing to slightly under-price your product or service in a highly competitive market.
No, look to differentiate your offer other than through price. There are many ways to achieve this – including adding value to your product or service.
In order to price your product or service, you simply take its cost and mark it up with your profit margin.
The problem here is that many businesses are probably unaware of their costs and fail to mark up prices properly.
When sales are slow, just lower your price and orders will increase.
It’s important to realise that customers put a high value on quality and service, as well as price. When you simply reduce prices you run the risk of lowering customers perception of the quality you are offering.
Myths like these and commercial ignorance generally are a lethal combination when it comes to pricing and competing in your marketplace.
One pricing strategy that can be used and successfully applied to the advantage of business owners in many different sectors is that of increasing your prices – but without actually increasing your prices at all.
Here are some suggestions on how you may be able to increase your sales revenue without the need to announce an increase in price.
1. Decrease the level of discounts you’re currently offering customers.
2. Increase your minimum order volumes so that customers have to reach a higher threshold before they qualify for discounts.
3. Increase your delivery charge and start charging for any additional special services related to delivery.
4. Consider charging your customers for any supplementary or installation services that were previously included as standard.
5. Raise prices to cover for overtime or additional time needed to deliver rushed or very short notice orders.
6. Have sound credit control processes and don’t be afraid to charge interest on overdue accounts from the last few months.
7. Look to identify and focus on selling higher profit margin products and services, and begin to phase out/place less emphasis on lower margin items. If you are unsure of what your margins currently are, it will be a worthwhile excercise finding out.
8. Check out and review the penalty clauses in all of your contracts. No doubt your suppliers will be imposing tighter terms and conditions on you, so it may be an idea to consider a more commercially aggressive approach.
9. If appropriate, look at possible ways to decrease some of the ‘fluffy’ characteristics of your product or service, whilst maintaining current prices.
To conclude this blog, there’s one thing you should take on board and remember above everything else.
Unless you’re a very fortunate exception, and have a significant cost advantage that is virtually impossible for your competitors to match, always resist attempting to compete solely on price.