Raising Your Prices Successfully

Are you still charging customers last year's rates?

By W. Eric Martin, Keyboard pounder & synonym selecter, TwoWriters.net

All businesses need to raise their prices periodically or rising costs will eat up profits and doom the business. (Yes, even Wal-Mart.) But you need to raise prices the right amount at the right time and for the right reasons. A surprise shortfall in cash flow doesn't mean you should raise prices across the board, but it can be the wake-up call you need to bring your prices in line with the market around you. By raising your prices responsibly, you can:

Afford to give raises and bonuses to employees.
Maintain a steady cash flow.
Retain customers in a competitive market.

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.
Try: 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.
Try: 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 break even 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.
Try: Pajama Professional 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.

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.
Try: 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.