Nearly every small business launch I’ve ever seen, including most of the ones I’ve started(!), have made competing on price at least part of their pitch.
It makes sense.
When you have a brand new business, you’re essentially saying to your potential customer, I know I have no history, experience, reputation, reviews, or references to point to… but I can give you a good deal! And it sometimes works, and you do a good job and build up all those other things you don’t have when you start as you do more and more work.
But the hard part is as an entrepreneur you always have that same sense of fear of missing out and not getting enough work as you do when you started and it can be easy to slip back into thinking a lower price is the way to get work and keep growing.
And sometimes it still is- there are times when you’d rather get some work at a lower profit margin than have no work, even when you have all the other things going for you that you didn’t at the start. But control of pricing should just be one of many levers you can pull to adjust the flow of business coming in, not the only trick in the bag!
The problem comes when you never move past that point of competing on price. If you aren’t doing it just because of the mental block of thinking you aren’t ready or deserving of charging what you’re worth we can fix that.
On the other hand, if you never really built up any of those other qualities and still only get jobs by being the cheapest, then that’s a different but more serious problem if you have any aspirations to actually grow your business.
So what’s the simple answer to how to immediately boost your profits? Raise your prices!
But since that sounds kind of cavalier and not particularly helpful without context, let’s dive in a bit more.
How to Successfully Raise Your Prices to Boost Your Profits
Pricing really could be an entire book’s worth of info on its own- there is a ton that can go into it. But in the interest of some quick wins, here are things to think about:
- When was the last time you raised prices? If it’s been over a year, you are definitely overdue! You should schedule a price increase at least once a year so you can keep it modest – 5-10%. If you wait five years and then suddenly jump prices 25% to make up for lost ground (and you can never recover the lost profits you gave up over the years) the difference will be a lot more glaring. At CapForge we evaluate and implement price increases every August – it’s the only way to make sure we’re keeping up with our costs and able to reinvest in further growth.
- People are more interested in value than price. So consider what you are including for the prices you are charging and see if there are things you can add to your offer that boost the perceived value – especially things that increase the value but may cost you little or nothing extra – things like warranties, guarantees, extended services or support or low cost or no cost options or add ons. Make the value increase bigger than the price increase.
- Review the competition – if they’ve been raising prices you may still be able to beat them there even with a higher ticket on your end. If they’ve been cutting back on their offerings to keep their prices down you can highlight that difference when you pitch your customers on what they get with you that they miss out on with the competition.
- Make sure you are pointing to all the great reasons they should go with you – better reviews, longer track records, more references, better experience, better outcomes, niche specialty, whatever it is that makes you the best overall choice when they consider all the factors, not just price.
- Make sure you’re talking to the right customers – if you are attracting a price-sensitive crowd with your ads or lead gen but wanting to sell at a premium price you’re not going to have much success. Either adjust your offer for the crowd you’re getting or get in front of the crowd that is going to be evaluating the offer you’ve got on more than just the price or at the price points you want to be selling at.
Most likely, you’re going to need to consider all the points above and make sure you’ve fine-tuned the price to work with the overall offer and for the customers you are targeting.
When done right, the price will be just one of many things they will consider before going with you and hopefully, you’ll win more than your share of the market!
By boosting your price and holding the rest of your business costs steady it then will boost your profits since that extra paid by the customers will drop to your bottom line.
If you don’t keep your prices up then what happens over time is your profit erodes and you can no longer recruit the best people, test new products or marketing, repair or replace equipment, or pay yourself. The business can end up in a death spiral when you try to further cut prices to attract more business to only hurt yourself further with unprofitable customers who leave unhappy. It sounds dramatic but it can happen!
Now suppose you look through all of the above and then come to the realization that the only reason customers buy from you at all is because you offer them the lowest price? If there is nothing about what you are selling that has any differentiation or redeeming value beyond being the least expensive, then what?
Well, that can mean one of two things. Either you are in a commodity business and you know it and you can produce at a lower cost than everyone else and do a lot of volume so you are still OK, which is doable but not great. Even the makers of Sunkist oranges (the textbook example of a commodity) decided to try and brand their commodity product rather than just compete on price!
Or, you are in trouble because the second someone comes along with a price that beats yours (and someone will) you are essentially out of business.
If you can’t think of a single reason (or a way to create one) why someone would buy your product over anyone else selling something similar (or exactly the same) then you might really want to reconsider the business you are in.
If you can, but you just haven’t made it a priority to promote those differences, then now is the time to start! If you can’t raise your prices today and not lose all of your customers, there is no time to lose in coming up with a solution for that situation now.
Hopefully, though that doesn’t apply to most of you and you can instead work on ways to build value and more than justify those price increases you will be rolling out and those sweet higher profits you’ll soon be pulling in!