How to Raise Prices

How to Raise Prices: if 90% of entrepreneurs have under-priced themselves, how do you raise prices
by Bob Goedjen

Price is about increasing the margin from sales to offsets costs beyond direct costs.  The recession has probably reduced  the volume of sales you have. Less sales means less margin  to cover your fixed costs.  An increase in pricing can sometimes do what a sales campaign to increase volume cannot do.

Similar to the advice on lowering prices or extending discounts you should not to change prices without connecting this to a reason that your customers will accept. When lowering prices you need an explanation so that they don't think you have reduced the quality or features or other things they count on.  This is also true of increasing prices in that you need an explanation and the simpler that explanation is the better. A prime reason you might consider giving to your customers is that the new product or service has more performance or features that you believe your customers need or want.  Generally speaking there is a long list of items that can be added that do not significantly change the cost to you.   In some cases you may even rename the product or service and let the former one die at some point.   To perhaps illustrate this, here's an example: you might have gone into your favorite restaurant and noticed the prices seems to be higher for the entrees.  If the names have changed you do not notice the change as dramatically since you can't really compare apples to apples.

Another thing to keep in mind is that you don't want to increase prices frequently so make your increase significant.  Remember you still can offer discounts and temporary price reductions if needed.  If you have a commodity product and your competitors are holding steady you will need to be more competitive but again even commodity products can be differentiated by things like purchase terms, deliver and availability, quality, free shipping charges, and more subtle items like made in the USA, made locally or endorsements for the product.

Perhaps the least preferred reason for explaining a price increase is because your costs have increased.   Yes, it can be used but the costs are not often visible to the customer and he does care much normally about your costs.   Remember this is all about value when pricing and not cost.  The case when a price increase based on cost is more likely to work is when the customer also is aware of the cost increase of something like the price of gasoline when he recognizes you need to use trucks or cars for your business.  Your customer  is much more likely to be understanding if they too are impacted by the cost of a commodity.

Let's say you decide to increase prices and your current volume of sales stays steady or nearly steady.  The result is you have come away with a clear victory for your bottom line. Make sure that your sales force and customer service or any employees interfacing with customers understands your move and has the appropriate explanation to give to customers.