This question is dividing opinion in the current environment. I am seeing and hearing three different strategies being adopted.
Some are reducing prices because they either fear losing business to competition, feel it is the right thing to do to support their clients or feel this is the only way they can win new business.
Some are keeping their prices as is, usually because they fear increasing prices or don’t know how to and are hoping that the business sticks.
Some are increasing their prices based on the value they are delivering and also to cater for increases in running costs.
Let me ask you a couple of questions:
- If you increased your prices (with the right justification) by 10%, how many clients would walk away?
- Would the profit benefit outweigh the profit loss?
The answers from experience are not many and yes.
How about if you put your prices up 20%? Maybe 30%? What about 50%?
I’d suggest that if you put your prices up 10% and are worried about losing clients, then price isn’t the real issue. They are either the wrong type of clients in the first place (buying on price) or the value they are receiving (or not being communicated) isn’t high enough to justify the increase.
Here is my view for what it is worth and I accept that whilst this is a broad statement, it will apply to most of you.
If you are delivering value, communicating the value that you are delivering and justify the increase, clients will not walk away from you with a 10% lift in price. I’d go on to say that very few if any will walk with a 20% lift and the ones that do, you’ll be glad to see the back of.
At 20% and probably 10%, the profit benefit should outweigh the profit loss which means you will be making more money, working with fewer clients (so the remaining ones get more attention) which in turn frees up the time of you and your team.
One thing to bear in mind in the current environment. Given the numerous issues going on in the macro environment, the problems of your clients will have changed in recent months. The savvy businesses I work with are asking clever questions, listening and modifying their offering to deliver even greater value. This increased value comes with a premium price and therefore, profit.
If you are still supplying the same product and service at the same (or lower) price than it was 24 months ago, you are in effect going backwards. Your competition will be putting their prices up!
The reality is that most small business owners are not taught how to price for value and so go with a best guess based on what their competitors are doing. They finish up in a commodity position where customers are choosing based on cost rather than value and this is a dangerous position to be in.
There is a psychology behind pricing.
A few years ago I doubled my prices overnight.
I got more customers and a higher conversion ratio because of the perceived value. Of course you have to back the perceived value up with actual value so it doesn’t damage your brand.
Getting your pricing strategy right is fundamental to retention and attraction of your ideal clients and maximising the profit you make for your business. Now is the time to be reviewing what you are doing. Don’t hide away and let your competitors in.
Best of luck.