Is it time to raise your prices?
Raising prices is one of the ‘elephant in the room’ discussions we often have with clients.
They know they ought to but they don’t.
They feel it is time, but they won’t.
It’s not the right time of the month, the quarter or the year! You get the picture!
You are not alone – we all face this challenge at some point in our businesses!
So when is the right time?
Harry and I had a bit of a brainstorm and we think there are 8 reasons or indicators that tell us that it is definitely, absolutely, positively time to raise your prices.
(1) If your net profit margin (net profit as % of sales ) is reducing
Are you selling less, selling the wrong thing or spending more? Take a closer look at your P&L to understand why and where your margins are reducing. If you are not sure then talk to your accountant and set your management accounts up to start tracking the profitability of your product, your services and your customers.
(2) When costs increase
And you know you need to charge more to your customer to cover the increase in costs from your supplier. If you don’t raise your price to your customer – then you are covering that increase yourself. It’s coming out of your pocket. That’s the money that you could have used to take your family out at the weekend. Sometimes you have to be that brutal with yourself. Is that really want you want? Absorbing the cost squeezes your margins and reduces the amount of profit after tax available for you to take as dividends.
(3) To fund investment in training your staff
In order to invest in staff training – you need money to pay for the staff to be trained and develop new skills. You need to invest in training your staff to stay ahead of your competition and keep your market leader position. If their skills increase significantly – like our very own Harry who has now completed his CIMA training and has now qualified as a Chartered Global Management Accountant – you may need to pay your staff more as they take on more responsibility and add more value to your customer.
(4) if you are delivering extra’s but haven’t charged for them
These are the little jobs when your customer says “Can you just…”, “Could you just…” do xyz. If you are regularly leaving profit on the table then perhaps now is the time to think about raising those prices. Of course, sometimes there is a speculative element to extra’s and we all want to be seen going above and beyond for our customers – that’s fine if you are aware of it and it’s part of the bigger strategic picture but not to the detriment of your own profit.
(5) if the scope of the service has crept
When your customers need more of your time or effort and you keep delivering without increasing your prices. The Scope Creep Profit Monster is the bane of many service businesses, it is so easy to lose track of what was first agreed in your contract with your customer and for it to creep over time – this is particularly common with projects that have an end deliverable but encounters issues along the way – such as a web development project.
(6) when your customer is growing
Which, in turn, creates more work for you – typical in a service industry like ours which works on retainer. It’s super important to track activity so your prices grow as your customers need grows.
(7) when you feel like the busy fool
And you need to create extra capacity in the business. You can do that by increasing your prices. Double your prices and halve your customers! This is a bit more of a strategic price rise – if you increase prices some of your more price-sensitive customers may leave because they don’t want to pay your increased price – and that’s ok – this leaves room for more customers willing to pay your higher price.
(8) When your business is not paying you enough
And you feel it should pay you more. This is probably the most relevant and most personally painful point for you as the business owner!! If your business is not generating enough money to pay you and cover your bills – you have to address your prices and your costs – before it is too late.
If you want to learn how to up your prices without upsetting your customers, join us in our Masterclass this Friday where we will take you through the 7 steps of increasing your prices without losing any customers – unless you want to of course!