Raising prices
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All businesses have to raise prices from time to time to stay profitable, but get it wrong and your customers will go elsewhere. Tom Whitney helps you increase prices without hurting your cashflow
"Setting your prices too high will reduce sales," warns Business Link Devon and Cornwall adviser Penny Heath. "But if you handle things carefully, you can avoid losing customers and boost your margins.
"Review your prices regularly to check they are optimal," she continues. "You need to maximise your profits without losing customers." Increasing costs There are any number of reasons why you might consider raising prices. Your overheads might have increased, for example, your supplier might have pushed their prices up or your competitors could be making more profit from the same item by charging more. Before making your customers pay more, however, think carefully about the effect it is likely to have on your sales. With a healthy profit per sale, it is possible to increase total profit while losing some sales. But pitch too high and even the most loyal customer will go elsewhere. "Consider whether you can rely on the loyalty of your customers if you increase your prices," Heath advises. "If the market won't bear a price rise, look for ways to trim your costs." Value for money Customers usually understand why increases are necessary. Most even expect them from time to time. Explain why you are increasing the price and explain how you are still offering good value for money. It may even be possible to turn a price rise into a positive marketing tool. "Just as a low price can create an image of low quality, a high price contributes to the perception that your product or service is of premium value," explains Heath. Chat with your customers to find out what they regard as the benefits of buying from you, whether it is price, convenience, quality or customer service. When raising prices, stress the value for money that you are offering to your customers. "You might even be able to highlight additional benefits the increase will enable, such as improved customer support," advises Heath. "Make sure your customers understand what they are getting for their money." Profit comes first Whenever you increase prices, you risk losing customers. Your knowledge of what your competitors are charging will help you price competitively. Raising prices gradually, to a plan, will also reduce your risk. "Consider limited trials of price changes to test the water," Heath suggests. "But if you have to put your prices up, don't be afraid to do so. The risks posed to your business by leaving prices as they are, for fear of upsetting your customers, can be considerable."
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