Yes, You Can Raise Your Prices. Just Do It the Right Way
Raising prices can increase margins and profits. Just make sure you increase prices for the right reasons.
PHOTO CREDIT: Getty Images
Sometimes that's true. Often, it's not.
One thing that is certain is that unless you're in retail, and raising prices just means replacing old ones with new, it's a lot easier to keep your prices stable. If nothing else, long-term customers won't complain.
But your bottom line may.
The key word is "may." Sometimes increasing prices lets you make more money. Sometimes, though, you make less: If higher prices lead to less total sales, your gross revenues and gross profits may actually decrease. (Selling 150 widgets for $10 and making $1 per transaction results in higher gross profits than selling 70 widgets for $11.)
How will you know if you can raise your prices? The key is testing. At LogoMix we conducted extensive price tests. We tested higher prices. We tested lower prices. In time we found the optimal price for our product based on the value we provided our customers - and the revenues and profits we generated.
Let's say you've done that. Let's say you've conducted your own tests and found your own pricing sweet spot. Even so, you'd like to increase your prices. Can you?
Yes. If you do it the right way. Here are a few.
1. Roll out products or services that add customer value.
Simply raise the price and customers focus on the price increase. Add new services or products and you put the focus on adding value; in a way, price becomes secondary. That's because smart customers focus on value. They're happy to pay more for greater value.
The equation is simple: The more value you provide, the more money you can charge - and the more money your business can make.
2. Roll out volume price points.
The typical move is to offer discounts on greater volume. But you can also go the opposite way, charging more per unit at lower volume levels. If you typically sell units of 50 for $50, create a package that provides 20 units for $25.
Not only will customers not mind - we're conditioned to expect lower per-unit prices at high volumes, and higher per-unit prices at lower volumes, you also may land customers who hesitated to buy in bulk. (That's why some things you just don't buy at Costco; not that many people need a 6-pack of barbecue sauce.)
Of course, you can introduce larger packages at lower per-unit prices. Or provide subsequent order discounts, especially if your customer acquisition costs are relatively high. If it costs you $50 to land a customer, selling a subsequent order at even the same price results in higher overall profit margins -- the net effect is the same as a price increase.
3. Roll out new bundles.
We're also conditioned to assume deals are better on bundles; internet and cable and phone are cheaper together than separate, right?
Maybe not. Creating a bundle of complementary products or services may allow you to incrementally raise prices on some of the items within that bundle - especially if the bundle provides greater overall value or convenience to your customers.
4. Roll out new service levels.
Imagine you're a tailor, a labor-intensive business. Currently you guarantee a 3-day turnaround. Some customers want their work done more quickly, though. Why not introduce premium pricing for 2-day delivery?
If you're always swamped, the increase in price may not impact your margins, especially if you need to add staff to pull it off. But if you work hard to streamline your processes... you may be able to make 2-day turns your norm. And you receive a higher price - and margins -- for doing so.
Sometimes the easiest way to "increase" your prices is to cut your costs. Focus on variable costs like labor, productivity, quality control, and shipping. Reducing expenses automatically boosts your bottom line. (Bruce Lee called it "the art of fighting without fighting." You can call it "the art of raising prices without raising prices.")
Even if you don't focus on reducing costs, as long as you provide additional value at a higher price point, many customers will happily switch to the more expensive option.
How will you know if that will happen?
Ultimately, the right price is based on the value you provide - and the problems you solve for customers. The greater value you provide, the more that you can charge.
How will you know how much value you provide? Test, test, and test some more, and your customers will tell you.