The Australian Small Business Blog

Sunday, October 24, 2010

Why Businesses Must Increase Their Prices

For the last 2-3 years businesses have been squeezed. Government controlled fees and charges have continued to increase. Most spectacularly electricity prices have skyrocketed at a whopping five times the CPI. Interest rates are on the move upwards again, and there have also been above inflation increases in rents.

Yet the average inflation rate has been between 2-3%. This means for most businesses, price increases have been much lower than the CPI to compensate for all the above inflation increase. That is, if they have increased their prices at all! Sales and discounting are rife.

For several years, businesses have been largely absorbing the price increases that are beyond their control. This is unsustainable. Even so, businesses are afraid to increase their prices from a fear of losing sales to their competition. No-one wants to be the first to move, and if they change nothing else besides their price, businesses are right to fear a loss of sales.

There are answers to this dilemma for business owners prepared to act strategically. Even with these economic pressures, it is still possible to increase prices by 10%, 20% or even higher and still retain their customers.

While there are also many strategies you can use to increase profit, such as increasing enquiries and increasing the number of times someone buys, there is something special about Price. It’s the one strategy businesses are most afraid to use, because if you increase your prices you might lose the sale. That’s a pity because price is such a terrific strategy. If you increase your prices by just 10% you can potentially double your net profit, depending on how profitable your business is.

To achieve a significant and sustainable price increase business owners must be able to defend their price. This means you must change at least some elements of your marketing. You need to find customers who are reassured by your price. For your best buyers, price is not their highest consideration. You must understand your points of difference and communicate the value of those points of difference to your best buyers.

Possibly the biggest psychological barrier is the connection between price and the cost of delivery of a service or a product, and owners must break this connection to achieve significant price increases. How to overcome this barrier and many other strategies, is described in detail in the book

Price: How You Can Charge More Without Losing Sales,

It is possible to have a successful business operating on a tight margin, but it requires strong cost management and relies on high sales volume. But if you can increase prices because you’re not in such a competitive or price sensitive area, why wouldn’t you?

Many hard-working business owners work long, back-breaking, hours servicing clients, sorting orders, and taking care of all the gruelling nitty-gritty ‘stuff' without making a decent profit at the end of the week; doing the same thing week after week and expecting something different to happen. (The definition of insanity.)

While owners may be afraid to adopt new strategies, they may have no real choice. They may actually be losing money on each sale, but are unaware of hidden cross subsidies in their business.

Price: How You Can Charge More Without Losing Sales

shows you how to identify these cross subsidies, and then how you can safely and sustainably increase your prices even in uncertain economic times.

May Your Business Be - As You Plan It.

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.

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The Australian Small Business Blog


melbourne chauffeur service said...

I visited your website, the information which you have shared in your site is very much standard and presentation of pages is very legible. You say right that if increase rental rate and increase other expenses so cost will be increase definitely.

Successful Entrepreneur said...

I agree, too many businesses charge near cost price, and wonder why they're struggling. Another thing to consider is that by having cheap prices, sometimes the customer can perceive that your product or service is not of good quality. Something that you should certainly be aware of. Please check out my website for entrepreneur advice

airport transfers melbourne said...

Magnificent Blog! Thanks for sharing this obliging information with me. There are lots of businesses that are essentially quite successful operating on a tight margin, but to do that you have to have strong cost management and rely on high volume of sales. But if you can increase prices because you're not in such a competitive or price sensitive area, why wouldn't you? I think one of the reasons why people don't do this often is because of that fear of losing customers.


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Dr. Greg Chapman is also the author of
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The Five Pillars of Guaranteed Business Success




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