Six Signs It’s Time to Increase Your Prices

iStock_000008930458XSmallThe price you charge is one of the most important on-going business decisions you will make.  If you charge too much, you may lose sales.  If you charge too little, you will overload your pipeline with busywork and low-profit customers who prevent you from growing your business. How do you know when it’s time to raise your prices? Here are six signs you need to make a change – and fast!

  1.  Your business is attracting bargain shoppers.

If the majority of your new customers are shopping primarily based on price, then you are generating short-term sales with long-term problems. Your margins will not be high enough to provide the cash flow you need to grow your business through technology upgrades, new equipment purchases or new employee hiring.

     2.     You cannot remember the last time you raised your prices.

If you do not suffer from amnesia and you cannot remember the last time you raised your prices, then it is definitely time! Consider phasing in price increases over time to eliminate the shock to your system.

     3.     Your competitors have raised their prices.

Airlines are famous for this. As soon as one airline charges for bags the majority of the others do the same. Watch what your competitors are doing. If they have raised their prices three times and they still maintain their market share, then be a copycat.

     4.     Your bank balance continues to decrease.

When your sales volume increases and you experience a decrease in cash flow, it is often a sign that your costs have increased. Either your suppliers are charging more or your overhead costs are increasing. You need a price increase to stop the bleeding. Instead of defaulting to the cost-plus pricing model, consider a creative approach. There are 22 different pricing models, so mix and match to calculate the sales price that provides the profit margin you desire and represents the value you provide.

     5.     You easily close 95% of your new sales opportunities.

This one may sound like a great problem to have, but it is a sign that your prices are too low. When you start hearing “your price is too high” from at least 5% of your prospects, you will know you have found your sweet spot.

     6.     Your services are in high demand.

As more people learn how awesome your services (or products) are, the demand will increase. You will be forced to choose – increase production (work more hours/make more widgets) or maintain your current level of production and increase prices.

As a business owner, it is a fact of life that you will have to raise prices from time to time. I recommend you constantly monitor your price in comparison to your costs, so that you remain competitive and earn the money you need to meet your financial goals.

If you need help selecting a price model or researching competitors, contact Tina White.

Like this post? Sign up for the In the Black with Tina White blog.

Tina White, CPA, is the owner of Panoramic Business Solutions and the author of the blog “In the Black with Tina White”. She helps business owners and managers save time and money using technology and financial data to improve efficiency and cash flow.

© Panoramic Business Solutions, LLC 2013.  All rights reserved.




Leave a Reply