It may seem obvious, but one of the easiest and quickest ways to increase business profits is to increase prices.
So why don’t businesses do it more often?
The equally obvious and simple answer is that businesses fear losing business and customers.
In fact, higher prices are generally seen to equate with higher value – and raising prices can often generate more demand, not less.
Clearly pricing is linked to the perceived value of what you offer and it’s essential to get pricing right.
Of course, in very competitive situations eg tenders, price may be a significant factor, but generally research shows that only 15% of customers buy essentially on price. That 15% are not the customers you want to target; they are usually the hardest to satisfy too.
A 10% increase in price, with no decrease in customers, often increases profit by much much more than 10%, as your business’ base costs are already covered.
If you just increase your prices by 10% each year, it might take a while, but in 5 years you will have transformed your business.
Of course some businesses, perhaps up to 20%, have scope to increase prices by 50-100%
The Key To Pricing – Understand The Behaviour of Your Customers
As we’ve already highlighted, the vast majority of customers do not buy on price alone – yet many businesses approach their marketing as if it’s all about price.
For the majority, perhaps 60-80% of all customers, they are concerned about other issues too – not least quality. We are almost all prepared to pay more for a better experience; just think about last time your booked a holiday or simply went for a meal.
Price reductions can even have a negative effect on your business, especially if you are positioned at the higher end.
The key is always to focus on communicating the benefits of your services and products in your in your copy and your emails. Your customers may be willing to pay more than you think – provided they understand the benefits of what you offer.
At the core of your pricing strategy is your positioning. This is linked to your goals and where you want your business to be. You can choose which market you want to target. This applies to everything. You can choose to sell budget pizzas or gourmet pizzas. Fords or Ferraris. You can model Harrods or a corner shop.
If you have a passion for what you do and it is not high end, that is totally fine of course, but understand that you are making a choice and that it will affect your business and its profitability.
Your business and your marketing are all about that market. Who are your ideal customers? If you choose to target people who are willing to invest, instead of those who fight over every penny – it changes the quality of your life and the profitability of your business.
So, here are our 8 Steps for Successfully Increasing Your Pricing
1 – Test
Testing is obviously at the heart of pricing. We can all guess what prices can be justified and sustained – only customers decide.
So it’s worth testing different price points. You may be very surprised. The results will vary from business to business, even in a similar market or local area.
Of course, it might be opposite – 10% cut may boost business. If so, the boost in your business may help your leverage scale so as to reduce your costs per unit – and it’s still good news for your business.
It doesn’t matter what your competitors are doing. You can always test with 1 element of a service, or perhaps within a range. Or test an increase to a group; there are lots of options.
Remember the example of airlines; these days virtually everyone has paid different amount for their seat.
If you sell online, from email marketing, or from ads, via your website, it’s worth split testing and using 2 landing pages.
If you are worried about testing an increase, just remember that you can always reduce prices again.
Continual, ongoing testing is the way to go; don’t just assume your prices are right.
2 – Reinforce Benefits
Of course, this is always essential. You need to continually remind your customers what’s in it for them and why it is worth the price you are charging.
When people object to a price, they rarely mean that it’s too expensive per se, it’s just that they can’t see the value.
So in your marketing materials, online and offline, always immediately repeat benefits, with your pricing. In fact highlighting more benefits will easily mean more sales, regardless of prices.
3 – Offer Add-ons or Bonuses
You need to choose add-ons which increase perceived value, but do not cost too much to deliver.
These can be anything from free CDs containing useful information, to free delivery for physical products. Anything you can deliver in media format, has low costs, but increases value.
Do remember that your competitors may be doing the same – but not communicating this to customers.
There are no rules about what to offer – you can offer products nothing to do with core business. Just try and see what works.
4 – Add a Guarantee
Guarantees are always effective, as they reduce risk for person doing business with you and perceived risk is a blocker to sales.
So, if you add a powerful guarantee when increasing your prices, this will help offset any resistance. Again, simply test it.
5 – Overcome Objections
If you can overcome your prospective customers objections effectively, you have more scope for an increase in your prices.
As before the key is to focus on highlighting benefits. If you save people time, perhaps, then reinforce this, by emphasising that you a freeing up time for other enjoyable or profitable activities.
Price is the most common objection given (even if it’s not the underlying issue). It’s always important to highlight value and to confront potential issues on price and value. So here you can specifically ask people: ” Do you think this is too expensive? Here are the reasons why not…”
6 – Add an Elite or High Price option
This is an excellent way to test a price increase, without risking an adverse impact on your sales, if you are really worried. There is always a proportion of your target customers who will pay more for an elite version of whatever you offer.
So consider what you can offer as an elite option. Going back to airplanes, it will be business and first class seats, with uprated comfort and service.
What can you offer in your business as a high end and high priced version of something related to current services?
7 – Sell Yourself
Sell yourself personally. This is especially effective especially in any competitive market. It enables you to differentiate. It’s why we always recommend personal branding for a business; you should always have 1 or 2 individuals who are the “face” of your business.
With services, of course this is especially important, but even if you sell products, you can link yourself to them, via great service.
Emphasise that when a customer does business with your business they get something different – you. Highlight this in a personal way: “I’ll go out of my way to… I’ll do whatever it takes…”
Very few businesses do this and it’s still the easiest way to overcome price objections.
Do not hesitate to say that there are cheaper options – someone else who will do it cheaper, but they are not the best, they do not invest in same way. Ask: “Do you want cheap – or do you want the best?”
This approach will mean that the pure price purchase people, who are not your ideal customers, will go elsewhere. While you get the valuable long term customers who will buy from you again and again in the future.
8 – Value Yourself and Business
Pricing is also about how you value yourself and your business. Always remember that you’ve invested years of time and a fortune getting good at what you do. So you should value that.
If you don’t value yourself and your business, why should your customers?
Mindset is the foundation of pricing and your business. Many people are not comfortable with receiving a large amount for what they do, even though they offer great value.
The price you deserve is the value you add. You are making a difference to people, so be clear and confident on your prices. Be proud; they reflect the quality and the value of what you offer through your business.
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