When chatting with clients who aren’t seeing the profits that they want or expect, we often find, after taking a look at the numbers, that their pricing isn’t right. Most commonly, we find that pricing is too low, and the business owner is reluctant to raise the price. This is usually due to fear of competition and scaring away loyal customers. But the fact is that if you are providing a service of value, customers usually are loyal, and they expect an increase in price over time. What you will usually find is that rather than chasing away these loyal customers, your competitors will also raise their prices and you will make a profit! You can see an example of this in one of our case studies here.
Service over Price
When a customer chooses to stop buying your product or using your service, price is generally not the reason why. Usually the reason for leaving is down to the relationship they have with you. If you show your customers/clients that they can trust and depend on you, that you value them, they won’t dispute a small rise in price. Make sure you keep in touch with your most valued customers. A good thing to do, if you haven’t already, is keep a list of your customers/clients and rank them in categories in order (A,B,C) based on factors you consider make a good customer. Then you can make sure you contact all of your clients frequently, focussing on A ranked clients. Show them that you are interested and value what they have to say.
The effect of price on the bottom line
Perhaps surprisingly, price has the biggest effect on the bottom line. Over all the other actions you can take, a small increase in the price you sell your product or service can have the biggest impact on your profit, even more so than winning new clients or increasing sales. The associated costs of other methods of increasing turnover often take a lot more time and are more expensive. For example, the marketing costs of bringing new customers in and the labour costs of the new work. Increasing price can be quick and cheap to implement. If you treat your customers well and they are happy with the service you provide, most won’t bat an eyelid at a small increase in price.
An example of the effect of increasing prices
|£ Per Unit||£ Per Unit|
|Less: Cost of sales (Labour, materials etc.)||40||40|
So, if you sell 10 units at £100, your profit will be £600.
However, if you increase your selling price by 20% and sell each unit for £120, you only need to sell 8 units to make a profit of £640 (8 x £80).
This means that you can easily afford to lose 20% of sales volume and still make more money.
Grow your business and increase profits
Is your business not making the profits that you want it to? If you need help to grow your business and increase your profits, get in touch! Rosslyn Associates provide business advisory and coaching services for growing, owner managed businesses. We can help you by really getting to know you and your business, so we can help create a plan for growth. We have regular meetings to ensure you stay on track. Working together, we can uncover the real issues in your business and find the areas that can be improved. As Chartered Tax Advisors, Accountants and Business Advisors, we have the ideal combination of skills to help you grow the business you really want. If you’d like a chat about how we can help, give us a call on 0131 445 1825 or email firstname.lastname@example.org.