Increasing Prices

Many small business are caught between increasing costs and fear of raising prices. The reality is that, as most costs simply can’t be absorbed by the business, the only real alternative is to find innovative ways of increasing prices.

A study of one profitable business revealed that if they were to decrease prices by 10%, the result would be a loss. If, however, they were to increase prices by 10%, their profit would rise by 100%.

An article by Anne Field in the current issue of Businessweek Smallbiz magazine suggests four ways of raising prices without scaring off business:

1. Pass along the cost of fuel and delivery costs. Everyone feels the fuel pinch and can empathize with others who have to cope with the same problem. (Of course, right now the cost of fuel is not the issue it was even three weeks ago).

2. Implement “selective inflation”, by not raising the price equally to everyone. You may want to maintain current pricing on bigger and better customers, while raising prices for marginal customers and new customers.

3. Communicate what your are doing – especially to your larger customers. If you need to raise prices due to increased fuel and delivery costs, send letters to your customers explaining the tactic before the increase goes into effect.

4. Be creative in your pricing. For example, if you charge by the hour, perhaps you could move to a flat fee, and encourage greater employee productivity. You could also do what many packaged food companies are now doing – reduce the size of the product while charging the same price. Look at opportunities to keep your business running at between 80% and 90% of capacity. The article points out that running less than 80% increases overhead, while running more than 90% decreases productivity.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net