June 16th, 2022 Taxloopholes.com Advisor
Pricing is something that, as a business owner, should always be at the forefront of your mind. Your profit margins can make the difference between a business that can scale and grow exponentially versus one that remains stagnant.
But for many business owners, the idea of increasing their pricing is often met with some hesitation. Perhaps you worry about losing out on new clients if you change your rates in relation to your competition. Maybe you have clients that have been with you for several years and feel like they deserve to stay at the lower price point. Or maybe you just haven’t really given it any thought at all and have just been keeping with the status quo. Whatever the reason, now is the time to put the excuses aside and review your pricing.
Inflation hit hard in the past year, and for many industries, those price increases will continue for the foreseeable future. So, you may have to adjust to keep up.
Here are a few things that you should consider when reviewing your current pricing strategy:
The first rule of pricing has to do with your cost of goods. If you see that your suppliers and manufacturers are raising their rates, you must adjust your own prices to accommodate. Every $1 increase in the cost of goods, means at least $1 lost on your profit. Review your pricing often, and negotiate with your vendors to keep your costs low.
Things like pre-paying or shortening your pay window may be enough to negotiate lower rates with some of your vendors. Bulk purchasing may be another option to keep your costs low. But when all else fails, a price increase to your customer may be the best solution.
It’s safe to say that you aren’t the only one in the market. You have competition, and you should keep an eye on what they are doing and how much they are charging. This doesn’t mean that you have to have a lower price than your competition, however. If you are creating value and have a superior product, don’t be afraid to charge accordingly.
If you have previously based your pricing on your competition, it may be time to rethink that strategy altogether as oftentimes a higher price point gives a perception of value to the customer and you may find it easier to make sales.
Many owners hesitate to increase their pricing because they don’t want to upset their loyal customers. But the reality of the situation is that most consumers understand that costs change over time. Everything from grocery items to cars has increased over the past few years so it just makes sense that your product would also have some price adjustments over time. As long as you are creating value in the minds of your consumer, a price increase shouldn’t be a huge concern for most businesses.
Price increases can be a touchy subject for many business owners. But if done correctly, your business can grow and you can expand your products and services to better serve your market. So, don’t be afraid to review your strategy and adjust as needed to keep your business healthy and on the right track.