The most effective way for a business to realize its maximum profit is to get the prices right. Getting the prices right is the most important way to secure success in the business. As they say “get it right and you will thrive, get it wrong and risk permanent damage to the business.” Pricing is an investment but when there is a price increase, many would shy away thinking that they will lose customers but not getting the right price will be far more damaging.

Find out why increasing your prices will increase the transactional value to your business.

Why is there a need to increase your prices?

Everyone wants to save money and it can seem like a challenge to determine how to raise prices and keep customers from leaving to find a more affordable option. But before raising your prices or rates, you need to know the reason you might need to increase in the first place.

The increase in prices is a result of numerous factors. The following are some of the factors:

Increase in business costs: Raw material costs can change overnight. For example, the sudden increase in oil prices that is needed to run the machine that will help manufacture your goods will affect the production volume. Or a shipping company may charge more for deliveries if the cost for gasoline goes up.

Quality Control: Most consumers take a higher priority in checking the quality of the product or service than the cost. Maintaining your business’ reputation is a worthy justification in increasing your prices.

Business Growth: This would depend on the size of your business. Adding some employees or expanding your branches or departments would require costs. You will need the profit from your business to keep going so that you can pay your new employees, and keep your day-to-day transactions and a price increase will help achieve such.

Market Value: Get your prices right based on how customers value the business. If your pricing is lower than what is average in the market, then you should reconsider stepping up the game—to charge more to keep your business competitive and profitable.

New Services: If you are planning to offer a new product or service, you may need to increase your prices. If your customers have been demanding something that will cost you more to produce, then it is a justifiable reason for you to increase your prices.

To curb demand: you may be overworked or booked out for weeks or months. You can intentionally reduce your demand by increasing your prices.

What are the benefits of increasing the prices?

Increasing the prices of your business is just one way of growing your business. When you get the prices right, a lot of benefits will follow. Here are some of the benefits from increasing the prices.

Increasing your transaction value is the quickest and easiest way for you to increase business turnover. When there is an increase in business turnover, then it will also increase your cash flow. When there is positive cash flow in the business, it indicates that a company’s liquid assets are increasing. When you have a positive cash flow, you will be able to settle debts, reinvest in your business, pay expenses, return investment to shareholders, and provide a contingency fund against any future financial challenges.

Higher prices also attract better quality clients. When you position yourself in the market as the best, you will attract clients who will value your offers. These kinds of clients take responsibility for themselves and have reasonable expectations about what’s possible to achieve from your service or from your products or whether they can work together with you. They are likely to stay loyal to your business instead of leaving for a lower cost option.

When your clients invest in your business, you can provide better results. Charging higher prices to your clients will let them expect to have better results and they will be more invested in getting results. For example, if you sell training services to your clients, charging them with low prices will cause them to give up easily at the first sign of difficulty or struggle but when they will pay you a bigger amount, they are more likely to stick with the process long enough to get the results.

What are the effective ways to increase the prices?

If you are planning to increase the prices of your goods and or services, here are some steps that you can follow to implement such increase:

1. Determine how you have currently priced your products or services. Three methods are common, market rate, cost plus margin, guessing.

2. Research past increases. When you research past increases, you will also know how your clients have adjusted to price changes. It will help you understand how your business will run in the next few months when you will have a price increase and it will also prepare you for any challenges.

3. Start with an increase that makes you a little uncomfortable. That might be 5%, or it might be 10%. By increasing your prices by 10%, based on the example you will read below, you may be able to lose 25% of customers without losing any profit.

4. Develop Internal Champions. You cannot put the weight of enacting the price changes on a single person only. Create a team, if possible, that will ensure that the process goes smoothly and will ensure that momentum isn’t lost during the transition.

5. Communicate with your team. Educate the members of your team about the pricing changes. This is a wonderful opportunity for you and your team of internal champions to remind them of how the value proposition has evolved and that the new pricing reflects improvements that you offered.

6. Communicate with your customers. A communication plan will help you introduce the new pricing scheme to customers. The better prepared you are, the easier it will be to stick to your plan and successfully increase prices. Creating a solid plan is very helpful.

7. Stay Steadfast in your mission. You must stay true to the value of your business. Delivering only the highest quality product or service is a core to a successful business.

How can this help my business?

Coca-Cola—the multinational beverage corporation selling billions of drinks in over 200 countries. It has been in the industry for over 130 years and as a business owner, one would want to know how a company like Coca-Cola was able to thrive all through the years.

One of the most notable strategies that Coca-Cola applied is its ability to thrive in the market through its pricing strategy. Coca-Cola has been able to increase prices over time, above inflation, and grow their sales levels.

Pricing played a powerful role in expanding the underlying gross margins despite rising commodities. The Company made sure that it increases its prices for at least 3-3.5% throughout to help sustain margins.

Coca-Cola also reiterated multiple times that the company wants to earn price increases with innovation, marketing, and consumer engagement.

Many would truly shy away with the idea of price increases but price increases are helpful to sustain the business. Like the example given, Coca-Cola has been in the business as they make sure that although they increase their prices, it remains affordable to the general consumers. People will still patronize the product and at the same time the Company will not be at a loss.

The price a business charges for its product or service is one of the most important business decisions that management makes. Pricing decisions affect revenues rather than costs.

What is the impact of price increase?

As mentioned above, let me give you an example:

If your gross margin is 30% and you increase your price by 10%, your sales would need to decline by 25% to experience the same profit levels. Your customers may actually see the 10% increase as minimal but the potential effect it has on your profitability is enormous.

What it says is that if you increase your price and lose some customers, as long as you do not lose the relevant margin percentage, you will have a positive impact on the overall margin of your business.

It’s easy to think that raising your prices will automatically have an adverse effect but that is not always the case. Price increases can help sustain your business as it will add value to your transaction and it will bring a positive cash flow to your business.

TL;DR:

>> Pricing is necessary in sustaining the overall business.

>> Getting your prices right and increasing it will help you increase your transaction value.

>> Increasing the prices of your business is just one way of growing your business. It will also help you attract better quality customers, and when you have better quality clients, it will inspire you to provide better products and services.

>> With better quality of goods or services, it will help increase sales and increase in the business’ cash flow.

>> Pricing also plays a powerful role in expanding the underlying gross margins of a business. Better pricing will have a positive impact on the overall margin of the business.