Well one thing you could try is to increase all your prices by 1% immediately. Why, because you can; if you’re selling something for £100 pounds people aren’t going to stop buying it because it now costs £101. I can’t we’re in the middle of the worst recession in living memory you must be nuts – you say. I say – no, its your conditioning that says that. I can in all honesty say that in almost every company I work with; one of the first things I do is to get them to increase their prices and having done so they are surprised that they don’t lose any customers in the process. Yes even in the worst recession in living memory. Why? Am I a genius – I hope so – but no. Am I a magician – no.
The answer is almost invariably, because companies profitable gym are selling their product or service too cheaply because they’ve been conditioned that “Cheap is Good”. Realistically as a small business owner you should understand that whilst price a factor in purchasing its by no means the main factor, people tend to buy more on quality brand capability and service. Your price therefore, should reflect your costs and be sufficient to give you a decent profit. So in order to price correctly you should have a detailed analysis and understanding of your costs.
This is something that many businesses don’t have, only by understanding what and how your costs are made up in detail can you accurately set your prices over the long term. Whilst the general rule the sales price is 2.4 time manufacture costs, it’s still a rule of thumb and likely to lead to a gestimation of costs which will almost always be less than the real costs. As a general rule you should be increasing your price at a minimum annually to keep in step with inflation and also when there is a major change in the price of components. Don’t worry if you are not the cheapest because it is rare that you will be as there is always likely to be a business with a lower price.
Anyway you don’t want to be the cheapest because at those levels there is no customer loyalty. Finally your price should reflect your product position. Simply put you can’t offer a Rolls Royce product or service for the price of a Ford, unfortunately many business owners believe that’s the only way they can survive which is often the very reason they don’t.
Laurence Ainsworth is the founder of Exigent Consulting a business consulting organisation which provides Business Turnaround, Sales & Marketing and Mentoring to the Small & Medium Business Sector.