Companies that are not actively exploring, testing and implementing new prices for their products or services may have difficulty sustaining their business over the long-term. Specifically, businesses that price their products or services too low will have difficulty reaching profitability. Those that raise prices too high will struggle to achieve their customer growth goals set forth in their business model. Finding the right price requires constant evaluation.
Explore your current prices
If you set your prices once and never explore changing it again, then it’s more likely than not that they aren’t set correctly. Furthermore, it’s likely that your prices are too low for the product or service you’re offering. For instance, if you’re expanding your business and increasing headcount, then the added resources should be reflective in the value of the product and thus higher prices. It may even be that your prices are so low right now that you’re turning away customers that suddenly believe you’re selling a low quality product or service.
Evaluate your opportunity to change prices
After taking stock of your current prices, the next step is to evaluate them as it relates to both internal and external factors. From a company-specific perspective, you need to examine your current and projected costs across product and service lines. For instance, if your business typically generates 50% gross margins and headcount costs will increase by 10%, you’ll want to try to account for that difference with higher prices.
Businesses must also take note of the key external factors that impact their pricing strategy such as current market conditions and the competitive environment. If you’re providing professional services and the competition is shifting to offer more services for a lower total cost as compared to traditional hourly pricing, you may want to experiment with new prices. We’re not suggesting that you necessarily follow the market, but rather adjust your prices to reflect the value of your services as compared to the competition.
Implementing new prices
In many cases, it is not very difficult to reach the conclusion that you need to adjust prices. Implementation on the other hand requires a thoughtful approach and a clear channel to receive feedback. Your clients will understand the price increase if you can explain the thought process and the benefits they will receive from the change. In that way, you need to be very careful in how you send the news to your clients. In addition, you may want to survey your clients for their feedback, document it and analyze the responses over time.
More Questions? Ask your pricing strategy questions or find an accountant online.
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Tags: business questions, pricing strategy questions, small business, Ryan Himmel
