What would happen if you doubled your prices?
What would happen if you increased them by 10%?
How do you set your prices?
These are all interesting questions that often lead to interesting conversations and even more interesting results.
Most business owners set their prices based on a combination of what their competitors charge and to highest price that avoids customer complaints. The problem is that the level where no customers complain is well below what most customers would be happy to pay.
Here’s some pricing tips based on what our most successful clients do:
1. Set prices that your best customers will be happy with. It doesn’t make sense to set prices for your worst customers.
2. Test different prices. Sometimes there is less price resistance to higher prices because there is a perception of greater value.
3. Differentiate your product or service so there is no apples for apples comparison. If you can’t differentiate the product, differentiate the packaging, the delivery method, the guarantee or anything else.
4. Always look for a cost effective way to deliver more value.
It is important to understand that of all the drivers of profit in your business nothing has more impact than a successful price increase. This is because 100% of this increase flows directly to net profit.
In response to the second question above, I had a business owner tell me that they wouldn’t expect any customers to complain if they increased their prices by 10%. They were subsequently proven to be correct and they added $200,000 to the annual net profit overnight.