What You Need to Know Before Raising or Lowering Your Prices to Boost Sales!

24 Sep

Cutting Prices 2

 

 

One size does not fit all. You can only go so far pricing all your products based on a fixed markup from cost. Your product price should vary depending on a number of factors including:

  • What the market is willing to pay.
  • How your company and product are perceived in the market.
  • What your competitors charge.
  • Whether the product is “highly visible” and frequently shopped and compared.
  •  The estimated volume of product you can sell.

That opens the door to raising and/or lowering prices for your products. In order to make this call one way or the other, you should first understand what’s already working. Analyze the profitability of your existing products, so you can do more of what works and stop doing what doesn’t work. You want to find out which of your existing products are making money and which are losing money. You may be surprised at how many of your products are losing money — fix those ASAP.

You should also constantly re-evaluate your costs. To sell it right, you have to buy it right. If you are having a hard time selling a product at an acceptable profit, the problem may be that you are not buying the product right. It may be that your cost is too high rather than your price is too low.

When to Raise Prices — and How  raising prices
You should always be testing new prices, new offers, and new combinations of benefits and premiums to help you sell more of your product at a better price. Test new offers each month. Raise the price and offer a new and unique bonus or special service for the customer. Measure the increase or decrease in the volume of the product you sell and the total gross profit dollars you generate.

It is an unpleasant fact in business that you will have to raise prices from time to time as part of managing your business prudently. If you never raise your prices, you will not be in business for long. Continually monitor your price and your cost so that you are both competitive in the market and you make the kind of money you deserve to make.

The best way to determine if the products are priced correctly is to watch sales volumes immediately after making any change. This can be done by watching cash collections (if the business is cash or credit card based) or credit sales (if accounts receivables are used) for the weeks following. If a price increase is too high, customers will react quickly. In addition, watching the competition can help. If you’ve made a positive change in prices competitors are likely to follow your lead.

However, there is a right way and a wrong way to raise prices. You do not want to alienate your existing customer base by raising prices too steeply, especially during a recession. Rather than have a sudden increase, have a strategic plan over two to five years during which you gradually increase your price 5 to 10 percent. If your business is in trouble and you say, ‘Hey, I’m going to mark everything up”… that type of move scares people away.

In terms of raising your prices — it is more easily accepted in ‘good’ economic times. As the underlying cost of producing the product rises, the customer is prepared to accept the rise in the price to them. If the customer perceives the firm’s costs are going down while their price is going up. This will not be received well and is likely to backfire.”

Cutting Prices 1  When to Lower Prices — and How
You may realize that you have missed your target audience by pricing your products too high. You can always choose to discount your products or give customers something for free in order to get them to try your product or generate traffic to your storefront or website. People are attracted to free bonus offer or some kind of discount. You can make Wednesday senior citizen day when seniors get a 20 percent discount. In addition you could offer a student discount day.

Generally, lowering prices is not a good practice unless you are strategically trying to garner market share and have a price sensitive product, if most of your competitors are lowering their prices, or if you need to clear out old stock. An alternative to lowering prices is to offer less for the same price which will effectively reduce your costs without appearing to reduce the value to the customer. Restaurants have found this particularly helpful in terms of portion sizes but this same strategy can be applied to service industries as well.

Monitor Your Pricing  Monitor Cash Flow
Another key component to pricing your product right is to continuously monitor your prices and your underlying profitability on a monthly basis. It is not enough to look at overall profitability of your company every month. You have to focus on the profitability (or lack of profitability) of every product you sell. You have to make absolutely sure you know the degree to which every product you sell is contributing to your goal of making money each month.

Here are some other practices to help you price right:
• Listen to your customers. Try to do this on a regular basis by getting feedback from customers about your pricing. Let them know you care about what they think.
• Keep an eye on your competitors. If you don’t have deep pockets and can’t afford to hire a market research team, hire some college students to go out on a regular basis and monitor what your competitors are doing.
• Have a budget action plan in place. Try to have a plan for your pricing that extends out three to six months in the future.
You owe it to yourself and to your business to be relentless in managing your product pricing. Remember, how you set the price of the products could be the difference between the success — or failure — of your business.

Business Owner 4

Now that you know how to correctly price your products and services, it’s time to sell them. Next week we will begin a new series on how to successfully sell your products and services just in time for the holiday season!

 

The-One-Question-That-Improves-Your-Job-Search-OutcomeHave a question you need an answer to? Post it below or send me a message. I love to hear from you and I will answer you question just a quickly as I can. Until next time…..

 

 

 

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