For many business owners, coming up with a pricing strategy was a challenge in the first place. Now, you’ve been in operation a few years and it may be time to raise your prices, but the anxiety is back.
You fear that if you increase the cost of the product too quickly, customers will go elsewhere. But leaving your prices low without adjustments for inflation, cost of living, overhead, or other variables that affect your expenses, you could run yourself right out of business.
Here’s how to tell if it’s time to raise your prices.
Your Close Rate Is High
If a customer conversion rate is over 80%, you probably have prices that are too low. Ideally, your close rate should be in between 75% and 80%. If the conversion rate is in this range, you may want to check over your prices and see if you should increase them.
Of course, if you have an exceptional product that caught the attention of customers quickly, you may find that you have a higher conversion rate after raising prices. Sometimes, products that are too cheap can be a turn off to consumers – they assume there’s a reason they’re so cheap.
You Haven’t Raised Prices
If you haven’t raised prices in years, or you’ve never raised prices, now is the time. Often, business owners are afraid to raise prices at this point because they believe loyal customers will turn away.
Keep in mind that prices have very little impact on demand, so the demand won’t go anywhere. Sure, some customers may not be happy about the prices going up, but most will support you. A modest increase in price isn’t going to deter anyone.
You’ve Received Competitive Reviews
Whether we like it or not, our competitors’ prices influence our prices and how much the market will bear. You can use this same information to determine when it’s time to raise prices (and by how much).
Check out the prices that competitors are charging for comparable products and use that to inform your new pricing strategy. But don’t let the market dictate your pricing. If you’re the more expensive of the brands, your opportunity to come out ahead is in marketing your product for value or quality, rather than as the bargain.
Tips for Raising Prices
If you’ve determined that raising prices is a good decision, you can soften the blow by approaching pricing incrementally. Instead of doubling your price overnight, raise your prices by the appropriate amount. Consider how much of the price affects budget and how much leeway you have to add to the price.
Another option is to “grandfather” old clients in. With this method, you’ll keep the prices the same for your old customers and only raise prices for the new ones.
Boost Your Profits with Accurate Pricing
Pricing your products or services is always difficult. If you’re looking to raise prices, make sure to be transparent with customers to explain the reasons behind the price increase.
Could you use guidance to achieve your business goals? Work with business coach Allison directly!