Did you know that increasing your prices has a greater effect on profit than increasing the volume of your sales?  This is because, if everything else remains the same, the extra revenue from increased prices is not pre-allocated to pay suppliers, wages, or overheads.  When we increase the volume of sales, part of that extra revenue will go towards paying for the goods or servicing the client.  The maths works, so why are we always so reluctant to implement a price increase?

There is so much head-trash around putting up our prices; negative comments like “the client will leave”, “the client will think I am taking advantage or not like me anymore.”  Basically, it comes down to a fear of rejection!   

Some questions before you put up your prices…

Are your goods and services worth the new price?  If they are not, do not charge that higher price until you have improved the service.

Is the original price now too low that you are ultimately making a loss?  If so, you will have to increase your prices or you will not be in business very much longer, and your clients will then have the pain of finding a new supplier they like as much as you.

What are your competitors charging? Although this should never be the basis of your prices, you need to be aware of your marketplace.

What changes can you see happening in your marketplace?  Review whether it is this the right time to make changes, or plan in several small changes over the next year.

There is one more thing to consider, is there a clause in your contract about reviewing your prices every year?  This way price reviews are clear to your client at the very start of your relationship, and you should never have a problem. If you haven’t got a clause in your contract it doesn’t mean you shouldn’t approach your client regarding a price increase, it just means you need to be aware they could use your contract against you. Ensure you include it for all new clients

Some simple maths to help you decide…

If your gross margin is 25%, and you put your prices up by 25% you would need to lose 50% of your customers to be worse off.  If you approach a price increase the right way, you will only lose those clients you want to lose!

Hubspot has 6 great tips for you to follow along with a letter template you can use to let your customers know about that important price increase. Take a look at the advice given and I am sure you will have the confidence to increase your prices. Good luck!

https://blog.hubspot.com/service/price-increase

If you would like to discuss the financial side of your business, feel free to book a complimentary coaching session with me here