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A new year means time to evaluate the health of your business, profits, and prices. While it’s very normal to feel nervous to raise your prices, it may be necessary and here is why you should:
You’re undercharging
Every year it costs more and more to operate your business. Maybe the price of milk went up for your coffee shop or your rent went up in your office space.
Be brave enough to raise your prices now in small increments so that you don’t shock your customers 5 years from now. 2-5% should cover inflation. Be okay with weird pricing such as $5.17, it shows your customer you’ve calculated the appropriate profits.
Profits
The revenue you get from the increase in price goes straight to your bottomline without an increase in overhead costs.
Example: Imagine if you’re a gym charging each of your 100 clients $100 per month. If you raise your prices to $105 per month you can potentially add $500 a month (or $6,000 a year) of straight profit. This increase in profits can be used to help offset the increase utilities costs or to buy new equipment for your gym which could potentially bring you even more clients. Afraid of losing clients? You would have to lose 5 clients to make the raise in price ineffective.
Work with better clients
Another perk to pricing is that it sets the tone for the type of company you want to be and the type of clientele you want to serve.
The right customers are what matter. Quality over quantity. Good customers tend to not complain about prices if they value you and your service.
Bandwidth
You get what you pay for, as they say. If you’re priced too low, you may not have the time to provide top notch customer service.
How do you know when it’s time to raise prices? Calculate, at least annually, the price you charge versus your overhead costs and the condition of the economy you are in. Note that if business is slow, a price hike may not be necessary.
If you are raising your prices, communicate with your clients and be clear as to why you are increasing your prices.
Need an analysis of your prices or have any questions? Feel free to reach out here.
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