Even in the best of times, pricing decisions can be agonizing. It is one of the most critical decisions you need to make in your business model because your profit margins hinge on being able to price effectively. Price too low and you will lose money; price too high and you risk losing sales.
Conventional wisdom says it’s always easier to lower prices than to raise them, but it’s unrealistic to expect that your pricing will remain constant over the life of your business. Circumstances change, your costs go up, and often passing those costs onto the consumer is your only option. This is not a bad thing, but it is something that must be carefully considered.
During COVID, many of you have faced additional costs. Those facemasks and bottles of hand sanitizer add up! You may also have incurred costs to train your staff on health and safety protocols, you may have had to physically alter your space, and you probably have seen a dip in sales. You may have had to switch to more expensive suppliers, or perhaps have seen your wholesale costs increase as goods became increasingly difficult to find. Or, maybe you have instituted a new delivery service model and now you are incurring extra gas and wear-and-tear costs on your vehicle.
At the same time, consumer confidence has been very low. With high unemployment rates, limited stimulus payments, and additional benefits about to come to an end, it’s understandable that consumers are being extra careful and looking for bargains. At the same time, we know that consumers are still shopping, particularly online, and there has been a conscious effort to support small, locally-owned businesses especially during this holiday season.
Even if you know you need to raise your prices, it’s still hard. For some business owners, your customers are like family and it almost feels like a moral failing to have to increase. However, it’s better to raise your prices than go out of business by charging too little.
Here are some strategies to consider:
Check out your competition’s pricing and compare to your own. Where do you fall? Have your competitors raised their prices lately? Don’t forget to check online competitors too!
Raise prices on your best selling items only. This will have the greatest impact on your bottom line, and is less likely to lose sales.
Communicate WHY you are raising prices. If you need to charge extra to cover PPE for your staff to keep them and your customers healthy, let everyone know. Most customers will understand and support your efforts.
For service providers or wholesale accounts, consider phasing in price increases. Let your best clients know ahead of time that you will be raising your prices, and phase their higher costs in over a longer period of time.
Consider bundling products and services; alternatively, if you have been bundling, it may make sense to unbundle and let customers choose “a la carte”.
Focus on your unique value proposition, such as timeliness of delivery or high quality of products. Communicate to your customers why they should continue to choose you and your added value beyond just your pricing.
Ultimately, price confidently! Know your worth, the value of your time, services, and goods, and make sure you regularly evaluate your pricing strategy to insure your future success. You are worth it.