- Afford to give raises and bonuses to employees.
- Maintain a steady cash flow.
- Retain customers in a competitive market.
Action Steps
The best contacts and resources to help you get it done
Watch the prices around you
The Consumer Price Index (CPI) is a monthly look at how prices for a variety of goods are changing. Watch your competitors' pricing by checking their advertising or calling them anonymously.I recommend: Consider using the CPI figures (shown at the right of this Bureau of Labor Statistics page) as a guide for when to raise prices. For a more detailed breakdown of price changes by industry, read the monthly CPI Summary. You don't want to raise prices by, say, .2% each month, but knowing the trends for your industry can help you determine when price increases are needed. Porter-Sloan sells a software package that helps you put together a pricing strategy based on all the market conditions.
Calculate what inflation means to you
The rate of inflation fluctuates year by year, but in general prices rise over time. Raw materials, labor, rent -- everything gets more expensive over time, including what you buy with your earnings, so inflation should be a factor when you raise prices.I recommend: The Bureau of Labor Statistics within the Department of Labor has a CPI inflation calculator that allows you to determine what a dollar amount in one year equals in today's money. For example, $500 in 2001 equals $575 in 2006 dollars -- have your prices kept up with inflation?
Raise the customer's perceived value
At the low end of prices is a breakeven price, which nets you nothing; at the high end, the objective value, which is the price of a product or service assuming the customer perfectly understands its value (which is rarely the case). In the middle is the perceived value, what a person is willing to spend. Raise this perception, and you can raise your prices.I recommend: Marketer Larry Dotson lists 10 ways to increase perceived value, such as offering free samples, including testimonials in ads, guaranteeing your work or product, adding a bonus item, and -- strangely -- simply raising the price, since higher prices themselves sometimes make a product seem more valuable. If you sell products available in many locations, you can sometimes raise the perceived value by making your store look more posh; by looking expensive, you can charge more.
Control your language
A customer's perception of your business value often results from the language you or your employees use when you talk about prices.I recommend: Be up front with your prices whenever a customer asks about them. Don't use phrases that apologize for the price or imply that it's high. Don't hint at bargains or discounts because then the customer won't be satisfied until he or she receives one.
Tips & Tactics
Helpful advice for making the most of this Guide
- Bypass your customer's perceived value by offering new products or services that can't be easily compared to what you sold previously.
- Don't offer customer regular discounts, and gently eliminate or lower discounts already in place. By lowering a discount, you effectively raise prices. Similarly, lowering costs raises your profit margin, which accomplishes the same goal as raising your prices.
- Avoid price wars with competitors. Doing so will result in meager margins and fickle customers who have no loyalty to your business. Cultivate long-term customers who value your offerings because they won't be scared by a price increase.
- Ask your customers about your prices. They might admit that your prices should be higher than they are based on what you offer.
- Raise prices when demand for your products and services is rising, typically before holidays or an annual busy season.
- Increase prices slightly more than you need or want to. This gives you a cushion to lower prices or offer a discount if customers make waves -- and if they don't, you can hold off on future price increases longer.
Sales Techniques: Dun & Bradstreet®
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