The question of when to raise prices can be difficult to answer. This is especially true if you’re having trouble turning a profit in your business right now. However, if you want to keep your business around for the long term, it’s important to increase your prices at some point so that you can ensure profitability and sustainability in the future. But how do you know when the time is right? And how do you actually raise your prices in the first place? This guide will teach you everything you need to know about raising prices in your business.
Why Should I Raise My Prices?
A common way to make more money is by raising prices, but it’s also one of the most complicated. Raising prices can make your customers angry, hurt your business reputation and ultimately cost you more than you make. Conversely, it can keep your business afloat, help your customers to value you and improve your quality of life and work life balance. If you think it’s time to raise prices, these are the things to consider…
Should I be basing my prices on costs?
It’s definitely a very sound business model to base prices on your costs and calculating all your costs and how much you need to earn to live is crucial in business. Working out your hourly rate and setting your service prices on this is a solid basis for business. But are there any pitfalls?
Things to consider…
Prices based on costs can sometimes lead to one of the following two scenarios that you may want to consider:
1) if the price is higher than the customers’ perceived value then you may end up losing clients and taking fewer bookings. This may make you feel the need to discount, and your profits will suffer. If you are increasing your prices think about making sure you are also marketing that price increase indirectly. Make sure your clients know why you are awesome!
2) if however your prices are too low, and lower than the customers’ perceived value, you’ll be crazy busy. Your work life balance will suffer and you are leaving money on the table, and therefore are not maximising your profit. This is definitely the time to increase prices even more!
Should I be deciding my prices based on my competitors?
The first way you can increase your prices is by setting them higher than your competitors. This may be a good idea if you have a loyal customer base that will always pay a premium for your products or services. Perfect if you are marketing yourself as a “high end” or “luxury service” as clients will expect the prices to be high.
But what about if I’m a new starter?
It could be a bad idea to base prices on competitors. For instance, if you go higher it makes it harder to gain market share and get started. Then if you go lower, you have no idea of the state of their business. They may be about to close down!
If most of your competitors are offering similar pricing levels, you’ll have difficulty convincing people they should buy from you instead of them or standing out from the crowd.
It is also a bit of a lazy way of deciding on pricing. It is much better to find ways to differentiate your products or services. This will create additional value by making sure that the perceived value the client places on your service is equal to the price.