Making changes to your product’s pricing is almost always a difficult decision. Whether it’s an increase or a decrease, changes in cost can have a jarring effect on both you and your consumers. That’s why it is incredibly important to change your pricing sparingly and to be sure that your decision is based on good and valid reasons.
Here are some signs that it might be time to adjust your pricing.
1. Your Sales Go Up, but Your Profits Don’t
There are two common reasons for this. The first is that your costs might have increased, but your prices didn’t. Correct pricing includes more factors than just the price of raw materials. Have you added more staff, increased your business hours or changed your packaging? A number of things can affect your bottom line, and more than 90% of them have nothing to do with the cost of physical materials, but more to do with the cost of conducting business.
The second possible reason is that you’re spending more time doing work, but charging the same amount. If you work in a field that requires spending a significant amount of time servicing accounts—whether it’s due to maintenance, upgrades or ongoing contracts—it’s possible that these accounts are taking up more of your time without the added benefit of raising your profit margin.
2. You’re Selling a Lot and Gaining New Clients Quicker Than You Can Help Them
While sales are great, sometimes selling your products or services too quickly can have long-term negative effects. If you sign too many clients at once, you might have a hard time meeting their needs and honoring promises you made during the sales process. The first few months of onboarding a client can be the most important, so it’s key that you deliver on the different conditions you discussed during initial meetings.
3. Competitors Are Charging More for Less
Whether it’s an inferior product or service, if you get wind of the fact thatyour competitors are managing to make more money by selling less, it’s time to get more competitive. It could also be time to adjust your marketing and advertising to let clients know what you’re offering that your competitors aren’t.
While many customers prefer and value a superior product, many don’t conduct research to find out what really sets different businesses apart. As the marketer, it will fall on you to truly educate your clients, especially if you’re offering a similar product at a higher price point. People will be willing to pay more for quality, but they need to know why your offerings are superior.
4. Your Sales Team Can Only Close Deals if You Slash Prices
This may indicate that your sales team needs more training; however, if you’re confident in your salespeople and their skills, it might be time to lower your prices across the board. Needing discounts to close sales could mean that your products and services are consistently priced higher than your competitors, making it necessary for you to cut prices in order to stay competitive.
You can also examine ways to package your products or services so that they appear more attractive to your customers. Packages have the benefit of allowing you to bundle together services that work best in tandem at a single price, making it more difficult for them to nitpick at pricing and proposals. You can also offer small discounts on package pricing (e.g. 5%) that will still amount to savings for the client without hurting your bottom line.
5. Your Products Are Constantly on Sale
If the only way you can move product is to put it on sale, then you probably want to reevaluate your pricing strategy. While it’s true that consumers tend to like discounts, it might be best to look at lowering prices across the board.
Find your product’s pricing sweet spot: that price where you can sell a good amount of product to maintain steady cash flow without running into supply-and-demand issues. It might take a little experimenting to get it right, but closely monitoring your average sales and inventory will help.
It can be difficult to make the choice to increase or decrease prices, but it’s often necessary in order for your business to stay competitive. If your end goal is long-term business success, it’s best to spend time examining your pricing and ensuring that you’re offering the best product or service at the best price that you and your customers can afford.
Help Your Business Thrive
Get our Newsletter
Sign up for our newsletter to receive your free 30-day trial of QuickBooks