In business, there are four methods to increase profits:
- Find new customers (expanding market share or penetrating new markets)
- Increase your sales to current customers (cross-selling and upselling)
- Cut costs (lower overhead costs equal higher profits)
- Raise prices (to increase profit margin per sale, and increase profitability – even if the price increase results in some lost sales volume)
Most marketing and sales advice tends to focus on the first two, especially on finding new customers. The thrill of chasing new business is often more exciting in the minds of business owners than just doing simple, mundane things like cutting costs in your everyday business operations, or raising more revenue from existing customers. But every dollar of additional profit still has the same value in your bank account, whether you got that dollar from winning new business or whether you got it from identifying cost savings, or whether you got it from selling to an existing customer.
And that’s why more business owners need to pay more attention to the much-ignored 4th option: raising prices. If you can find a way to raise your prices, you can significantly boost your profitability without spending a lot of time on finding new customers. But raising your prices itself requires a certain strategic sales mentality.
Here are a few tips for how to raise your prices the right way, without alienating customers:
Raise Prices on Current Customers
If you have a longtime customer who’s been working with you for awhile and you have a good relationship with them, consider asking them for a modest price increase to cover your increased costs of living. Longtime customers will often prefer to keep you happy, so they don’t have to go through the switching costs of changing to another vendor or service provider, especially if you are a B2B solutions provider or professional services firm that is not a “commodity” that is easily interchangeable for a lower price.
Raise Prices on New Customers
Another way to raise prices is to let your current customers keep paying the same price that they’re used to, while raising prices for new customers. If you are a professional services firm, you might have a comfortable roster of clients who are used to paying a certain amount for your services each month, but if you’re getting overbooked with too much work, this could be a sign that it’s time to raise prices on any new clients who come on board. After all, new clients should have to prove to you that they’re worth the trouble – they are competing for your time and attention with longtime customers who have been loyal and reliable to you for years. So if you’re going to take the chance of bringing a new client on board, make it worth your while by charging them a premium price.
Raise Prices on a Package of Products or Services
Another option for raising prices is to combine it with a cross-sell offer: start packaging your products or services differently, with a higher combined price point or a higher combined profit margin than those services used to command on their own. If you’re a product business, you could start packaging a few low-margin products together with a more profitable product, and charge a combined price that is higher than what those products used to command separately. If you run a service business, you could start insisting on only selling a minimum sized package of services, to ensure that any new clients are going to be giving you a large enough volume of business to be worth the effort. Either way: think strategically and creatively about how you can repackage your existing offerings to be more profitable.
Business owners are often reluctant to raise prices because they’re afraid of losing revenue, but customers are often not as price-sensitive as you might think. If your customers are happy with what you sell, they will often be happy to give you a slight price increase that might not mean much to them, but that will make an appreciable improvement in your profitability. If new customers are getting referred to you, be sure to bump up your prices a bit. Raising your prices might cause you to lose some volume of sales, it’s true – but overall, raising your prices will more than likely help you improve your profitability by boosting your margins on each sale, by weeding out some price–sensitive clients (who are often more trouble than they’re worth), and by sending a signal to the market that your product or service is worth paying a premium.