By Sue Hirst, Director CFO On-Call
There never seems to be an easy time in business. We often hear people say “Times are tough and the competition is high.” One thing is for sure, well run and profitable businesses are the ones that survive and prosper.
You can’t run a profitable business if your product or service pricing is not spot on. Here’s some ways to achieve a good price without losing customers:
- Customer service – Provide the best possible customer service and value compared to your competitors – not all customers buy on price alone.
- Perception of quality – Promote the perception of quality and make it your ‘Point of Difference’ – make sure your customers know you are the best and why. Make the ‘invisible’ ‘visible’.
- Identify your USP – Emphasise your ‘Unique Selling Proposition’ – if there is something that you do that others don’t, tell everyone. Don’t assume they know just because you do.
- Small regular price increases – Do small regular price increases e.g. CPI at end of year and write it into contracts. These are much easier to achieve than irregular big increases.
- Margin tracking – Connect price increases with supply increases – keep track of your margins to see when to do this.
- Know your customers – Ask how they value your product or service. Good customers should be happy to pay for quality products and services and appreciate that you have to run a sustainable business. Seek testimonials and put them on your website and marketing materials. Also ask your happy customers to refer you to other good customers like them.
- Sack poor customers – This may be a scary one, but there may come a time when you need to ‘sack’ some customers. Price focussed, demanding, slow paying customers can take up a huge amount of time and may be unprofitable. The time you spend on them could be more profitably spent on good customers. If you feel brave and the time is right it may be time to categorise your customers and focus on the better ones.
- Which products/services give you what profit – Analyse your profit on various types of products/services/jobs, so you know which ones you can charge more for. It may be that some are highly profitable and some aren’t. Once you know you can decide to focus on the profitable ones and reconsider the losers.
- Which products/services are your best sellers? We recently had a client who hadn’t done a price increase for 5 years! When we analysed which were their best sellers they put a price increase on them with absolutely no resistance from customers. Your stock management or POS should tell you this information.
- Make it in the gross – The price you charge must factor in the ‘true cost’ of your product/service, plus a margin to ensure you’re making a gross profit. If you aren’t making a good gross profit it will be very hard to make a net profit (after overheads).