Over the last week or so, I have been noticing a theme among genius guests on my Conversations with a Genius Podcast. They are working with customers who don’t understand the value in or are afraid to raise their prices. This has prompted me once again to climb atop my tiny yet angry soapbox and rant on the topic of raising prices…
Lets start by outlining some of the myths about raising prices, the benefits of raising prices to you, move along nicely to shooting down some of your fears and objections around raising prices and end with you stamping your foot, pounding your fist and actually taking action to make your business way more profitable!! Hold on tight…
Myth #1: I have to have low prices to compete or even stay in business…
Truth #1: Low Prices = Low Margin = No margin for error
High Prices = High margin = Lots of room for mistakes
Businesses fail daily due to lack of margin and being priced too low, but they rarely go out of business for having great margins. Food for thought…
Genius Tip: If you aren’t the cheapest, there is no value in being a little more expensive… you might as well be a lot more expensive!!!
Myth #2: I’ll Make it up on volume…
Truth #2: Abridged version- Nope.
Truth #2: Full version- The race to the bottom price game always ends with the “winner” out of business. Don’t play that game… it sucks.
Truth #2A: Working More for less money makes ZERO sense.
Myth #3: My competitors are giving it away, so I have to.
- Low price leaders come and go and are often out of business soon leaving you with prices that don’t work if you chased them to the bottom in pricing.
- They may be losing money and self funding the losses- you have no idea what nonsense goes on behind the scenes.
- They may have back end sales/ other income that you don’t know about/ aren’t taking into account- maybe they are offering product as loss leaders and have a profitable back end that you don’t. Don’t learn this the hard way.
Myth #4: I have to have low prices to attract customers.
- High Prices = High ability to create an amazing customer experience
- Low Prices = Low ability to create an amazing customer experience
- Low Prices = Low perceived value for you, your company and its products and services
- Low prices attract bottom of the barrel customers
Myth #5: I can’t raise my prices enough to make a real difference. Maybe I can raise my prices by 10% but that won’t move the needle and it’s not worth the headache.
Truth #5: Raising prices doesn’t increase your Cost of Goods Sold or your overhead- it is pure profit!! If you are currently making a 10% net profit and you raise your prices by 10%, your profit doesn’t go up by 10%- it DOUBLES!!
|Original Pricing||Raise Prices 10%|
|Cost of Goods Sold||-$500||-$500|
|Profit||$100 (10%)||$200 (20%)|
Myth #6: If I raise my prices, my customers will leave and I will go out of business and be ever so sad…
- Even if half of your customers leave you are still making the same money doing half the work…
- Every new customer you acquire from now into eternity is TWICE as profitable
- You have so much more money to:
- Acquire more customers
- Creating an amazing customer experience
- Buy all sorts of crap you don’t need…
Now that we have debunked some myths and given you a peek into the value to you the business owner in raising your prices, lets get rid of some of those lingering fears and objections.
If you are still nervous about raising your prices, keep in mind that you don’t have to categorically raise prices across the board. Feel free to dip your toe into the cool waters of better margin by just raising prices on the next prospect that walks in the door. This limits your risk to that one prospect!
In addition to the benefit of mitigating your risk, you can shoot for the moon and raise your price by 30, 40, or 50%- heck, try doubling it. Worst case scenario- you are out one customer. Best case scenario- you have skyrocketed the value of your company and set yourself up for massive success.
Still scared? You shouldn’t be, but let me throw out one more drop of wisdom before giving up on you. Create a premium version of your product. Next create a super premium version of your product.
Don’t limit your thinking to what YOU would pay, it’s not about your beliefs, it’s about your customers beliefs. Some subset of people will always take the premium version. Regular gas is $2.00/ gallon? Not good enough for them, they want to pay $2.25 for the premium stuff that the gas pope has blessed. Couldn’t tell you why it is better, but they want it! Don’t believe it will work for your business? Google your products and services right now and you will find there are those charging 10X what you are.
You can go to Costco and buy a laptop for $400 but dozens of people drive past 3 Costcos and a Best Buy daily to plunk down $1,500 for a MacBook Air (I happen to be typing on said Mac product as we speak). You can drive to Walmart and pick up a nice purse for $18, or you can pick up the Gucci Crocodile Tote online for $41,500. Whatever you are selling, someone is selling a premium version and garnering better customers, more margin and a better sex life!! Ok, I might have exaggerated a bit with one of those, but you get the point…
Leave a comment about a time you paid way more for something you could have gotten much cheaper and why you did it. I will make sure I throw in my two cents as well. Next, let your creative juices flow and start writing out your plan to raise your prices and get the margin and profit you deserve!!