Increase your prices

Increase your prices

Let’s look at a few examples of how you can increase your prices (without losing business!)

Retail industry

Raising the prices of all your products by as little as $1 across the board would have a substantial impact on your bottom line. For example, if you sell an average of 100 items per day, this increase can generate an extra $100 per day, $700 per week or $36,400 per year, just by increasing each item by $1.

If your products already come with a Recommended Retail Price (RRP), you could relabel them with your own pricing, depending on how price sensitive your customers are! Apart from the time spent creating new labels, it doesn’t cost you anything to increase your prices.

What if you’re running a café? If you sell 2,000 coffees a week, a simple increase of $0.20 can increase your weekly takings by $400, or an extra $20,800 per year. This doesn’t cost you anything either, yet you brought in an extra $20,800 just by tweaking that price by $0.20.

What if you’re running a deli? In this type of business, the price is not usually the driving factor for purchases, it’s more about the quality of the items on offer. You could increase the price of your ‘per kilogram’ items by a few dollars because your customers probably have no idea what the per kg price is.

If there is no set RRP for your products and you are using a formula to calculate your markup, you could increase the markup itself. For example, you have an item that wholesales for $100. When you apply a 100% markup, the RRP is $200. You could add 5% so the calculation comes out at $205 — an extra $5 per unit.

You could do this across the board or even vary the formula depending on the category and what you think the market will bear. Often, when using your standard formula to price goods the retail price may appear to be too low. If you are not competing solely on price and offer quality items, you can certainly increase your prices and your customers will still be prepared to pay.

Service industry

If you work in the services industry, it’s normal to charge an hourly rate. This is not ideal because you get ‘stuck’ on that rate, scared to increase it in case your clients leave. When your clients are used to a certain hourly rate, it can be difficult to move them from that structure.

However, it might be easier if you have a set fee. The idea behind this is to ensure that you scope your services, clearly defining what is included and what is not. This can suit ongoing services as well as project related work.

By clearly defining exactly what you will be working on, how long you estimate it will take to complete the work and what your ‘internal’ hourly rate is to achieve this, you can determine a set project price and perhaps offer a payment cycle (e.g. monthly) over the period of work. This allows you to ‘value-base’ your services, so that your clients focus on the value they derive from working with you, rather than focusing on what you ‘cost’ per hour.

What about ad hoc tasks? Well, if any tasks happen to fall outside the scope of work, you can let the client know and prepare another proposal to cover this work.

Over time, you will get more efficient at carrying out the project work, thereby effectively increasing your internal hourly rate and increasing your margin on services. Here’s an example: You quote 20 hours at your internal hourly rate of $100, which scoped the work at a value of $2,000. Your cost of labour and overheads for this work is $40 per hour, leaving a margin of $60 per hour profit, equating to $1,200 profit on this work.

If you manage to deliver the work in 15 hours instead, you arrive at an effective hourly rate of $133.33 ($2,000 divided by 15). You have effectively increased your internal hourly rate by 33% and increased the profit on this work by $266 to $1,466. Now I’m not suggesting you rip your clients off but it’s all about value! If the client perceives the $2,000 to be value for money for the work involved, and it happens to take a shorter time to complete than you thought, that is your win.

If you had charged an hourly rate, you would have received $1,500 revenue with a cost of $40 per hour and thus a profit of $900, compared to $1,466. I know which profit per job I would prefer!

It’s all about the numbers, so play with your pricing and tweak it. As demonstrated above, even slight adjustments can deliver substantial improvements. If you’re reluctant to increase your prices, speak to your accountant and let them show you how simple it can be.

8 comments

  1. Thanks Alycia! love the concept of making slight pricing adjustments to create big long-term bottom-line increases. I specifically like the ‘internal hourly rate’ – good stuff! keep ideas like these coming!!
    Best, Susie Shina

    • Thanks Susie

      Yes little tweaks here and there can deliver big impacts on the bottom line. Tweak away Susie!

  2. HI Alycia,

    This is great. Loved when you said this about setting prices as a service based professional, “This allows you to ‘value-base’ your services, so that your clients focus on the value they derive from working with you, rather than focusing on what you ‘cost’ per hour.”

    I don’t know very many service professionals who do spend an hour in person or on the phone with a client and then call it quits. Time goes into preparation, follow up, notes, idea generation, research et.c on that client. Charging by the hour does not account for that.

    Great post!

    Melani

    • Thanks Melani,

      Often service professionals can also spend a lot of time creating proposals for clients, (planning a specific approach). Most professionals write off this time as a necessary admin component of their field, however if you incorporate the Internal rate equivalent of this time into your proposal it not only recoups this “cost” but also turns a potentially dreaded “wasted time cost” into a revenue generating task. Not all proposals are accepted but the mind shift this small change can make can see professionals churning out more proposals than ever before.

  3. I’m amazed that so few people will raise their prices. In every case, when I’ve had my clients raise their prices, their bottom line has improved. In a few cases, they lost some clients but gained better ones, and improved the bottom line significantly!

  4. Very thorough article on setting the price of your products and services. As a business owner, you are the price setter of your intellectual product or the experience you provide – some people may think you charge too high, some people think you charge too little. (I talk about this in my blog http://www.aliciadunams.com/how-to-set-a-retail-price-for-your-services-remember-people-pay-for-experiences/)

    As a biz owner, you want to focus on securing clients who want to pay the premium for your services.

    Because of your article – I’m going to raise my own prices!

    • Thanks Alicia

      That’s a great post on your blog! Thanks for the link. You make a great point about how some people think your prices are too high or too little. And that’s okay. Not everyone is your client and as you say its best to focus on those clients willing to pay the premium prices.

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