As a business owner, do you ever wonder if your products or services are priced correctly for your target market?
If so, you are not alone.
You are asked to bid on a project for a new client. You interview them to find out what they are looking for and provide an overview of how you could help solve their dilemma. The potential client sounds excited about what you have to offer and asks you to provide a proposal.
You toil over it for a few days to make sure you’ve got everything in place.
Then comes the hard part, the pricing structure. Some companies use a fixed-price method, where the product or service price is not negotiable. Other companies used a flexible-price model, where the price is open for negotiation between the buyers and sellers. In your case, you use a fixed-price model.
You share your proposal with the potential client, requesting a review and signatures to get started. You even invite them to be on a call to discuss particulars. To your shock, you received the signed agreement the next day.
You wonder, “Was my price so low, they jumped on it?” Or maybe, “That seemed really easy, my reputation precedes me.”
Let’s hope it’s the second. If it’s the first, it might be time to review your pricing model, and do some competitive research to make sure you’re not low-balling your pricing.
Pricing can be more complex than we realize, and we may end up shooting ourselves in the foot trying to figure out how cheaply we need to sell our wares, when in fact, consumers are willing to pay more!
Mike Michalowicz, author of Profit First and The Toilet Paper Entrepreneur, offers this great advice, “If you’re moving a lot of product at unsustainably low prices, it’s bad for your business. You must raise your prices or perish.”
The Four-Step Profitable Pricing Model
When it comes to raising prices in your business, you might be hesitant. Will the market and clients be able to handle the increase? How much should you increase prices? When should you do it?
In this four-step process, you will get out of your own way and begin to make a profit path you can live with.
Get Over It
You are your own worst enemy when it comes to price increases. You might be afraid you’ll scare away your existing customers and deter new ones from becoming customers. Remember, you can always increase prices, and then offer a sale or lower them in the future. However, if you never increase them and inflation does increase, it will eat away at your profits. If you have a range of services, try increasing only the most high-profile or profitable ones first. Then increase the others on a schedule. The increased margin will make your bottom line shine.
Tell Your Customers
If you plan to increase prices, alert your customers to the change in advance. This gives them the chance to digest the change and how it could impact their bottom line, and it also gives you a chance for good will. You may be able to offer some referrals, which could reciprocate in the end. Also, explain why you’re increasing costs. There could be a valid marketplace reason for the increase, such as the cost of goods, shipping increases, or perceived value. Consider this, if you feel you’re charging a fair value for your product or service, your clients will too.
Offer A Less-Expensive Option
When you offer a higher-priced item, remember to offer a similar version for a reduced price. For a service-based company, that may mean offering fewer services in a package, such as a basic, intermediate, and exceptional package. If you own a product-based company offer alternatives to the product, and share why it’s offered at a lower price.
Price Of Goods
You make money in the margins; that’s the retail price minus the cost of goods. If you can lower the cost of goods or services, then you automatically increase the profits. Find ways within your business to decrease costs of goods or services. That may include using out-of-state vendors, creating products in bulk, changing shipping companies, and more.
Check out the tips offered in the Accelerate: The Magazine, the Spring edition, for some creative ways several business owners are increasing their bottom line by focusing on the price of goods and services within their own companies.
Also, download this four-step process infographic or pin it to your wall or your online pinboard for reference.
If you need help finding cost-cutting measures within your business, or need assistance determining your pricing model, let’s chat.