Have you ever wondered how much more profit you could make if you raised your prices?
A common mis-conception is “If I raise my prices, I’ll immediately lose all of my customers… or at least a vast majority of them”. That explains why more than 90% of all small-medium businesses attempt to compete on price alone.
But what if you could increase your price and boost your profits? In order to raise your prices and get away with it, it’s important that you understand some basic facts about pricing..
First, consider the real pitfalls when competing on price:
– Low price shoppers overall will take up the bulk of your time
– They will bleed you dry if you let them
– 80% of customers provide 20% of your income. They’re complainers, not loyal and tend to be poor payers
When you increase the price you charge for your product or service, you will automatically repel your costly price shopping prospects. You will begin to attract those prospects who want more than just a low price… they want the best value. That’s why it’s so important you continuously add value to what you sell by understanding exactly what your target prospects want and then giving it to them in the form of additional products and services.
You can increase your prices “Across the Board” or “Across a Product/Service category” by a specific percentage… say 7%. But before you take action, you must have some fundamentals in place and follow a methodical process. The key here is to determine the uniqueness of your product or service… including the delivery method. If you are unique, a price increase can be easily implemented without suffering any adverse effects.
First, identify your competitors who provide the same or a similar product or service
– Note down what they offer and the prices they charge
– Special deals they offer
– Their various marketing and advertising offers
– Collect their ads, sign on to their mailing lists
– Visit their stores or websites
– Walk their aisles, ask them questions
– Make notes how their staff treats you
Then ask yourself the following questions…
– What prices do you charge for your primary products / services
– When was the last time you raised your prices
– How do your prices compare with your competitors
– How does your product or service compare to your competitors
– Do you provide any value-added services that your customer perceives that makes your product more valuable?
After you gather this vital information, use it to establish three critical components in your business that will easily justify any increase in price you elect to enact. These three critical components that enable you to dominate your market are…
- Your Market Dominating Position
This is the single, most important element when building a successful business. It’s what sets your business apart from your competitors. Do you communicate it clearly in every sales call you make, every ad that you place and every prospect you communicate with.
A great Market Dominating Position can enable you to focus on a specific niche market and communicate that you’re the only logical choice for them to do business with. You need to spend time developing yours, then make sure it’s communicated in everything you do… from your ads and your telephone conversations to each and every contact point you have with a customer or prospect.
When you communicate your Market Dominating Position to your prospects in a way that connects with them… both logically and emotionally, then the value of your product or service immediately skyrockets in their minds. This is the point where you will experience the greatest success when raising your prices. Ignore it, and your prospects can’t differentiate you from your competitors
- Adding additional value to what you sell
Many businesses operate using a model just like every other business in their niche or industry. Since most businesses were born and bred into that industry, their ability to pull ideas from other industries into their own is extremely limited. One of the smartest things you can ever do as a business owner is to adopt a systematic study program of businesses outside your own industry. These typically cost very little, but help add immense perceived value to your business.
In some businesses, offering free education is an excellent value added service… especially if your product is complex. Free education can take many forms such as a special report, white paper, special link that directs them to a section of your website, justifies any marginal price increase you choose to impose
- Reversing or eliminating all risk associated with the purchase
By eliminating the risk, you lower the barrier that prevents someone from buying from you. Strive to actually reverse the risk and remove it from the back of the customer and place it squarely on your own shoulders. This will compel your prospects to at least sample what you have to offer… especially if you can show that the value you offer is greater than that of your competition and that your market dominating position is more compelling.
The typical claim of “Satisfaction Guaranteed!” has been so over-used that it’s now meaningless to most consumers. The more you consciously include risk-reversal into your selling proposition, the more you will own the customer. The challenge is to refuse to be a commodity and learn how to become extraordinary. You must learn how to separate your business from your competition, and become the obvious choice to buy from.
What you can do to eliminate the customer’s fear of purchasing what you sell. A guarantee is an absolute scientifically calculated risk. The return rate will become a mathematical constant over time and you will be able to calculate your exact cost. Think about how you will reverse the risk for your customers. Come up with an idea and test it on the next ten customers. If you start to close more sales, then you’ll know for sure you’re on to a winning formula.
The three critical components of Establishing a market dominating position, Adding additional value to your product or service and Reversing or eliminating the risk of purchase can propel your business to a dominant position in your industry. Now that you’ve positioned what you sell in this dominant position, you can communicate your price increases.
Communicate Your Price Increase
Prospects buy based on emotion, but they justify it with logic. When you raise your prices, your success will be greater if you communicate to your customers the reasons why. If you let the customer in on your reasoning, they will be more inclined to do business with you. Don’t underestimate the power of the word “because”. Although I’m raising the price by $3, it’s still a great value because…
– I’m including a 100% no-questions-asked guarantee
– I’m including this additional service
– My expenses went up by the same amount due to X
– I’ve upgraded the quality of my staff so we can serve you better
– I’ve invested additional funds to streamline your buying process
– I’ve added technical support or live customer support
– I’ve upgraded my product or service so you get far greater value for your money… or a higher ROI if that language is more appropriate
Never forget that testing is the key component when it comes to raising your prices safely and successfully. There is no need to risk your financial future when you have the power and the ability to attempt a small test. When you test one price against another, you’ll be amazed how one price can produce significant changes in your profits.
Increasing prices is a powerful strategy to boost your profits dramatically. However, before you do this you must create a market dominating position, test the price increases on a sample of customers and communicate the price increase effectively with your customers.
If this is making sense and you need additional help using the price lever to scale up your business, schedule a Complimentary Scaling Up Strategy Session.