Greetings!
There is no doubt about
it; the costs of running a business are rising.
Inflating fuel and healthcare costs and the declining value of the
dollar are squeezing the margins of even the healthiest of businesses. Seeing your profits shrink, you may wonder
how much of these cost increases you can, or should, pass along to your
customers. In this, the first of a series of newsletters, we will explore some
factors that you should consider in your pricing decisions.
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SHOULD I RAISE MY PRICES?
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Pricing can be tricky. You
raise your prices your demand drops off.
You lower your prices you decrease your margins. But raising prices can
have a powerful impact on your bottom line if all else remains constant.
 Here are some factors that
you should consider in your pricing decisions:
In this market where your customers are also
looking at their bottom line, it is imperative that they understand the
value you bring to them. Any price
increases, when framed within the parameters of how your product benefits
your customer will be better received than an across-the-board price
increase. Your customers must
know how much time or money you save them, how your product or service
improves productivity or reduces waste.
#2 Have you exhausted all
options for cost management? -
While some costs such as fuel and healthcare
are rising, there are others, like insurance that have been dropping 10% a
year. Get in the habit of reviewing
your expenses and shop around for better deals. The time you invest in this will pay
off. For additional ideas of cost
savings check out the article Managing Profitability in a Recession
- Work with your suppliers to reduce costs. You may have more leeway to negotiate
terms and may be able to order larger quantities at a discount or
stockpile before a price increase.
You will have to weigh the cost of carrying the inventory and
having cash tied up for an extended period of time against the savings you
would receive by locking in a good price.
#3 How much should you
raise your prices?
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While gas companies have no problem passing
along 40% price increases to consumers, most businesses don't have the
luxury of selling something as necessary as fuel. If you sell a commodity, your customers
are more likely to be more price sensitive than if you are the only
provider of a certain product or service, this is known as price
elasticity. (read more)
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