Profit is the final piece in the puzzle that most people miss. Profit is simply a monetary result of the wealth formula. It’s the fair commercial transaction that cements the value of the product and service. It actually increases value, because we tend to value what we pay for and not what we get for free. The producer will be more accountable and committed to delivering the product and service which benefits the consumer. The consumer will be more accountable to use or consume the product because they’ve made a payment. So you could argue a strong case the payment is better service for non-payment. Payment exchange is also a guarantee. The money flow into transaction enables reinvestment into innovation and improved products and services. The money flow includes taxes, rates and contributions that are fed back into public services. The money flow creates employment, which generates further taxes and funds people’s lifestyles and livelihoods.
Money is literally the idea, the vision, the creativity and the spiritual converted into the material. You are an alchemist of money when you honour your passion, turn it into a profession, serve a market and balance the wealth formula elements of value, fair exchange and leverage.
Price strategies for success in business
I have the answer to all your business problems and prayers. How to significantly increase your prices, without losing (all your) customers. There is one really easy thing you can do to go from struggling to making consistent and significant profits. It’s so simple anyone can do it, even you. But you probably won’t do it. You’ll know you should, but you’ll still have doubts.
I’ve helped hundreds of thousands of start up and scale up business owners in the last 12 years, and most of these people initially think you can’t just increase your prices overnight. Why?
- They think they will lose most of their customers
- They think their customers will complain
- They don’t think it is fair to their customer loyalty
- They feel they may be judged
- They may have guilt, feel greedy or not worthy
- They feel the market can’t sustain the price increases
- They only think of the cost of increasing their prices, and not the cost of not increasing their prices. After all, Apple and Rolex seem to have no problem with it.
- Consider the following points to (significantly) increase your prices (or face the costly consequences):
1. Price escalation
A great way to get your head around increasing your prices is to use the price escalation model of starting at a competitive price, with a clear intention of incrementally raising them. This could be a yearly price increase an inflationary price increase or a new launch price increase.
Whenever I launch a new product I always go to my best customers first, with the very best price I can do. This rewards them for their loyalty, allows me to test the product, creates some proof and confidence, creates a rewarding fair exchange, and also get some case studies for the second launch. I always increase the price sometimes for the second launch, sometimes significantly. As I’ve done this many times, my audience knows this to be true and so they rush to by the first version of the launch. They’ve seen proof that the prices will go up so it creates demand, urgency and fear of missing out. It is a great feeling to reward the early adopters and action takers, and creating proof for further price increases.
You can deliver this version one, make your improvements and take feedback, with increased confidence of a higher price when you launch version two.
I own many properties and I can tell you from experience that it’s far better to increase the rents once a year by a smaller percentage, than wait five years, dramatically increase the rents, and potentially lose the tenant and have longer voids.
2. Split price testing (price elasticity)
If you want more evidence and thus confidence to increase your prices and what they should be, don’t guess, test. Price elasticity is the price variation testing, where there will be a sweet spot between margin and volume. The assumption is that prices are too high, when in fact prices are often too low. The perception is that the value isn’t good because the price is low. If you saw an ad for laser eye surgery where you got a 90% discount, paid just £100 and got the second eye free, what would you think about that. People and the products and services are often too cheap and you could be under pricing and inadvertently repelling good quality clients. Low prices repel high margins and good quality buyers. So don’t leave it to chance, test different price points to find the sweet spot.
3. Innovate or hybridise
When you are first or early to market, or you innovate a product or service, you can often charge the most. The market is immature, there is less competition, less scale, more need, excitement and newness. Where you can, be early to market with a new product or service, or hybridise an existing product and give it better functionality or application. You can build more demand in early markets, and when demand outweigh supply prices always rise. The health and fitness industry is always re-inventing itself. The phone market is always evolving, So it doesn’t have to be brand-new tech no one seen before he just has to look new, different or unique.
4. Be boutique not basement
Boutique or high-end brands with relatively low volume but high margin, where customer service, uniqueness and customer experience are a focus, you have virtually no ceiling on price. Audemars Piguet can charge £100,000 for a watch, Apple £1,500 for a phone, Tom Ford £10,000 for a suit and Estée Lauder $500 for face cream. Don’t ask how I know the last one! You get to deal with higher quality clients offering high-level service, where scale is not as important and you can run a more lifestyle lead business. The higher margin, higher quality business models tend to suffer less in recessions, especially if they’re not a high-volume producer. If you have way more demand than supply, you can literally break through ceiling after ceiling of pricing.
If you sell your time offering consultations, coaching and one-to-one’s, again there is no limit on this price because there are no rules. You set your time value and no one can argue otherwise. Friends of mine command on $200,000 for keynote speeches. Celebrities have now broken through the £1 million price bracket, for one shout out post on their social media. All the work you do when your self worth reflects in your pricing and thus your net worth. Investment in yourself: knowledge, experience, confidence, network, reach, impact, will all reflect in higher prices and fees.
5. Increase value to increase price
If you follow the formula for wealth, more money will flow as you increase more value. So focus on how you can add value, help, care, serve and solve, and that will reflect back in your prices. Here are 5 ways to increase value:
Most obviously, provide a better service, giving more value first before raising your prices. If you offer 10% more value and 2-5% higher costs initially, you can easily increase costs by 10% with little fallout.
Increase the speed or efficiency of your product’s delivery. People will always pay good money to reduce or relieve pain.
Offer benefits that are perceived to have great value, yet have little to no extra overhead costs to you as the service/product provider. Value is perceived rather than a concrete fact. This could be information, online access or support.
Repackage what you already have. Packaging is often the key to suggesting the image of either a higher or lower value for a product. Look at the Apple packaging and how they changed the game, they even sign and design the internal parts that you can’t see.
Move the “free line”. If you give more value upfront and without cost or pain to the client, you immediately begin building trust and increase the likelihood of them purchasing your products or services. You build up latent goodwill that you can cash in, sometime in the future.
6. A 10-20% swing won’t impress you much
If you had assets or investments, and they went down 10-20%, you probably wouldn’t go into a fit of panic or rage. Sure, you wouldn’t be happy, but you could probably handle it and control your emotions well enough not to make fashion selling decisions. If they went down 50% that could be a different story. And in reverse, if they went up 10-20% you probably wouldn’t be overly manic, excitable and plan your retirements. So a 10-20% value (or price) swing wouldn’t likely bother you too much. And so it likely is with your clients and customers if you increase your prices. Would a tenant move out for a 10% rent rise? Probably not because inconvenience and removals could cost years of that extra rent.
7. Most of price rise is profit (overheads covered on current pricing)
Most people don’t realise that if you have a 10% profit margin (let’s say you make £10 on every £100), if you increase your prices by just 10% (assuming no extra overhead) you double your profits with such a small price increase. All your overhead, staff, loan, premises, stock and more costs are currently covered (or not quite) by your current pricing, so all (most) of the price increase is profit. A small rise in fees can translate to a vast percentage increase in profit.
Every 15 years or so inflation halves the relative value of money. This means your prices need to have risen around 100% in that time, to not have risen at all in relative terms. So every 15 years you need to 2x your price to 1x your price. If you don’t meet this rise, your suppliers will and the costs or goods and services to you will rise, but your prices won’t and your profit will get eaten two ways, lower pricing and increased cost, which is the direct opposite of what you want to do.
9. Would you really lose all your customers?
If you increased your prices, would every single one of your customers really flock to your competitors? Really? Sure, you might you lose the demanding ones; the ones who want £10 for £5, but that could be a good thing (next point). Not all customers cost you the same overhead, because some customers are a huge drain on your time, resources, staff, customer service, refunds and cost you a LOT more than others (even in commodity based business). One customer could cost you 5 or 10x what another does, and as such the least demanding one has a huge profit margin and the most demanding one has a negative profit margin. That’s not even to mention the mind-space and energy consumption. So, you know what you’ve got to do, don’t you
10. You won’t be able to grow or sustain your enterprise
If your margin isn’t good, because prices are too low (or costs too high), then you can’t sustain your business, and it will go bust, and the very customers you wanted to give a bargain or great service to end up losing out.
When I was an artist, struggling to sell my work and make any money, I had guilt around pricing my work. I’d sell my art for less than it, and I, was worth, then I’d be bitter towards my customers to boot. But they aren’t going to offer you 50% more than you price your own products. If you increase your prices you can always discount them. The low prices that cause resentment become a self-fulfilling prophecy in that you don’t want to give service and gratitude, because you aren’t making any money. And none of it was their, or the markets fault, it was your choice to price as you did. So remember that in order to grow you will need profits to re-invest, and profits will encourage gratitude and not resentment. So…
11. Continually invest in your brand & your equity (prices) rise
Market forces encourage reinvestment in quality and innovation to get the edge over your competitors and differentiate yourself in that marketplace. Do not get lazy or complacent, re-invest into improving and innovating existing and new products and services to increase the quality and value. As you do that will push the price up. But it only goes up if you push it up. ‘Brand equity’ is the goodwill value in your brand. How you do anything is how you do everything, so invest in brand value, reputation, customer care and service, yourself and your knowledge, as well as product improvements. You can afford this with higher prices and profits.
Above all things, remember that your fees attract the type of client with that kind of income and repel the rest; low fees repel higher-paying clients, while high fees repel lower-paying clients. When it comes to raising prices, higher fees are often great pre-qualifiers, repelling time wasters and window shoppers and hastening your route towards success in your chosen business. Higher prices attract customers who can afford the prices you are asking for, value your service more highly, and who are more discerning and knowledgeable.
There is enough money.
There is the right niche for your product.
There are enough (of your ideal) clients.
There are only self-imposed limits on price.
You are already (more than) enough.