Last post we looked at the nasty hidden effects that discounting can cause to the financial health of a business – which most small business owners are not aware of. We also looked at what to do instead – add value!
A further or alternative step is to look at your pricing for your service or product – have you considered taking an upper or premium pricing strategy? Instead of JUST looking at cutting costs, significant profit upside remains untapped in the area of pricing area, and it is much more attractive than focusing on cost-cutting. It is a quick win that goes straight through to the bottom line. Observe the table to see the amount by which sales would have to decline following a price increase before your gross profit is reduced below its present level. For example, at a 25% margin a 6% increase in price could sustain a 19% reduction in sales volume. If you are running with a margin of 35% and you raise prices by 10%; then you could lose 22% of your business volume and still be no worse off! And if you DON’T lose 22% – you are in front as a bonus!
So re-assess the value of your product and services, and ask if you are positioning your business offerings in the marketplace at their true value to the customer? And if you decide that you are worth more; then this table arms you with the courage and conviction as well as a guide to monitor the result to price your services and products at their real value! Surprisingly few price reviews are proactively investigated, let alone implemented. Remember ultimately, decisions on pricing must be measured against other critical factors, pertinent to your industry and your situation. Pricing can be an exercise in both leadership and innovation – But always remember to record and measure – Act on facts not just “gut feel”!
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