A jewelry store at a busy cruise ship port had a store full of items, one of which wasn’t selling, despite its relatively modest price of $25. Frustrated and worried about getting the inventory moving, the store manager told her employee to drop the price to $18 and just close the thing out. The manager returned from a few days off and discovered that her employee had misunderstood her and raised the price to $80. In a panic, the manager went looking for the back inventory to change the prices, only to discover that the one piece in the case was the last in the store. Her employee had mistakenly raised the price and sold them out.
That’s a pricing lesson.
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! If you’re moving lots of product at unsustainably low prices, it’s bad for your business, and you must raise your prices or perish. Here’s how to adjust your pricing without alienating your customers.
1. Get over yourself. You are the biggest opponent to raising your prices because you’re scared that you will lose customers. What you must realize is that no one else actually cares that much. The biggest barrier to charging profitable prices in in your own mind. Get over it, and keep this in your back pocket: if you raise prices and it flops, then you can always lower them. You’re the boss, and you get to raise and lower prices as you see fit. If you have a range of offerings, try experimenting with raising the price on just one or two items and track the results. I’m telling you now that you’ll likely see little effect on sales, and your increased margin makes your bottom line look much healthier. Think about all of the products that you purchase on a regular basis, and think about how many times the prices have gone up. You still continue to buy the things you need and want … and your customers will to.
2. Notify your existing customers and tell them why you’re raising the price. Customers don’t like to be surprised by price increases. Make an announcement, give them a date for the increase to go into effect, and briefly explain why you’re raising the price. Are you hiring a new employee to serve them better? Are you investing in a new line of products or buying better equipment in order to improve your service? Let your customers know where their money is going, and they’ll be much more receptive to the change. Now you might lose a few clients over your increase, but there are actually two additional benefits of raising prices. First, the clients who leave are nearly always the folks who are difficult and costly to you in terms of the time and resources they require. You probably won’t even miss them. The other benefit is that raising prices – and asking yourself if you’re charging a fair price – means that you’re reflecting and making sure that you’re offering your best product, the very best service that’s truly worth a little more. If you believe that your product is worth every penny you’re charging, then your customers are likely to agree with you.
3. Offer a lower priced alternative. When you decide that you simply must raise prices to remain competitive, think about bumping the price of your existing product and creating a stripped-down version at a lower cost. Consider the computer industry – the highest margins are at the extremes in the pricing strategy. Both the high end and the low end products are the most profitable, in part because the cost to the seller is so much less for the low end items. Cut your costs and offer your clients a deal.
4. Make your money in the margins. Your profit is the retail price less the cost of goods sold. If you can find ways to reduce your costs, then even if you leave the retail price the same, you’ve instantly made that product more profitable. Step back and evaluate your pricing and costs periodically to ensure that you’re as efficient and cost effective as possible. You’ll find bonus dollars if you can raise your prices slightly and also cut your costs a bit.
The best place to start when you’re examining your pricing structure is with the quality of the product you produce. If you’re offering exceptional value and convenience, then your product may be worth far more than you’re charging. Charging a fair price for your product means that you can pay your staff (including yourself) fairly, and still give good value.