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PKF Australia

Accountants and Business Advisers

I can’t increase my price!

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Andrew Beattie

Director

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I can’t increase my price!

There is no way I can increase my prices! We would lose customers straight away! Our market is different, we have to have skinny margins!

The above are just some of the responses I hear when talking to many clients and business owners generally about increasing the price for their products or services. I believe many businesses, not all, only take this view because they don’t have a strategy or know their point of difference and therefore the only thing they can compete on is price. If you don’t value what you do or what you provide then how can you expect anyone else to and therefore how can you price accordingly?

Reality is every business gets increases from their suppliers; at least once a year but often multiple times per year. If a business doesn’t pass these costs on then they are funding their clients and customers from their own profits…at what point when deciding to get into business did you decide to do this? And for what? Because you might lose some customers? Chances are you won’t but even if you did consider this, a business with a gross margin of 30% that increases its prices by 10% can afford to lose 25% in volume to achieve the same profit result. Do you really think your business offering is that fickle that you would lose more than 25% of your customers/clients?

Another point when considering a price increase is you don’t have to increase the price of everything across the board. There may be key products or services that have to be very competitive with other market players and therefore these prices remain steady. An example of this is the grocery market in Australia. There are 2 key players who effectively play a price war. Then there is a smaller player who, to compete, ensures their top lines or their staple products are in line with the prices of the key players (note though they are still a little higher in price) as this is what the customer knows. However all other products, lesser familiar or not the every day purchases, have a significant mark up (%) compared to the 2 larger players. This is simply good retailing and adequate pricing for their business model.

There are many approaches and strategies that can be applied to pricing within any business but at the very least you need to review and consider regularly rather than put your head in the sand as the only one it is costing is you. And if you don’t know where to start seek some advice; it is too important for the success of your business and your returns.

So, can you increase your price…


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