For many small business owners, the thought of raising prices also raises their blood pressure and stress levels! After all, the decision to raise prices is a tough one, and can have many ramifications for your small business. The main fear of most small business owners who need to raise their prices is that their customers will flee. That definitely can happen, but most small business owners who’ve successfully raised their prices have learned that it’s not all about the numbers. And that’s the first lesson:
1. Don’t assume price is the only factor customers consider. There is a common misconception in today’s economy that customers shop on lowest prices. That is true for some industries, but there are typically many customers who shop on quality, not just price. Companies who try to compete on price alone often find themselves winning that race to the bottom, but don’t have any profit to show for it.
2. Compete on something other than price. We’ve already talked about how competing on price can be a losing battle for many. Competing on something other than price allows you to charge more for a product or service because you’re offering your customers something that is better than what your competitors are providing. For example, better customer service, money-back guarantees, a better return policy, or support are all factors that give your business value and support higher prices.
3. Clearly communicate your unique differentiation and the value of your products and services. Most small businesses who charge more for their products and services can do so because they have created an experience, a story, or a perception that allows them to charge more. Focusing on the value you deliver and communicating that consistently through your marketing mediums is key.
4. Cover your costs. Surprisingly, many small business owners don’t really understand what they need to charge to cover their costs and make a profit. As a result, they work extremely hard to stay in business yet don’t make any money. So many find themselves in a position where they need to raise prices soon after they have started their business. Small or incremental price increases are what works for most small business owners. Some find that even a few dollars price increase can make margins much less precarious, and not affect sales at all.
5. Add value. Many small business owners find they get the best results from increasing price and value. Take a look at what you are offering, and see where you can add some value. Often-times small business owners can cross-sell or create packages that allow a price increase and give the customer more value. Pricing tiers are also popular and typically successful. Bring the cost down for a basic product or service and add an higher value product or service can boost revenues and give the customer a choice. You might be surprised at how often the customers pick the higher value product or service!
If you’ve been struggling with whether to raise prices for your small business, we hope these lessons on pricing from successful small business owners gives you inspiration!