By Al Davidson
Deedster / Pixabay
In business, there are four methods to increase profits:
- Find new customers (expanding market share or penetrating new markets)
- Increase your sales to current customers (cross-selling and upselling)
- Cut costs (lower overhead costs equal higher profits)
- Raise prices (to increase profit margin per sale, and increase profitability – even if the price increase results in some lost sales volume)
Most marketing and sales advice tends to focus on the first two, especially on finding new customers. The thrill of chasing new business is often more exciting in the minds of business owners than just doing simple, mundane things like cutting costs in your everyday business operations, or raising more revenue from existing customers. But every dollar of additional profit still has the same value in your bank account, whether you got that dollar from winning new business or whether you got it from identifying cost savings, or whether you got it from selling to an existing customer.
And that’s why more business owners need to pay more attention to the much-ignored 4th option: raising prices. If you can find a way to raise your prices, you can significantly boost your profitability without spending a lot of time on finding new customers. But raising your prices itself requires a certain strategic sales mentality.
Here are a few tips for how to raise your prices the right way, without alienating customers:
Raise Prices on Current Customers
If you have a longtime customer who’s been working with you for awhile and you have a good relationship with them, consider asking them for a modest price increase to cover your increased costs of living. Longtime customers will often prefer to keep you happy, so they don’t have to go through the switching costs of changing to another vendor or service provider, especially if you are a B2B solutions provider or professional services firm that is not a “commodity” that is easily interchangeable for a lower price.
Raise Prices on New Customers
Another way to raise prices is to let your current customers keep paying the same price that they’re used to, while raising prices for new customers. If you are a professional services firm, you might have a comfortable roster of clients who are used to paying a certain amount for your services each month, but if you’re getting overbooked with too much work, this could be a sign that it’s time to raise prices on any new clients who come on board. After all, new clients should have to prove to you that they’re worth the trouble – they are competing for your time and attention with longtime customers who have been loyal and reliable to you for years. So if you’re going to take the chance of bringing a new client on board, make it worth your while by charging them a premium price.
Raise Prices on a Package of Products or Services
Another option for raising prices is to combine it with a cross-sell offer: start packaging your products or services differently, with a higher combined price point or Go to the full article.
Source:: Business 2 Community