As a business, it’s important that you always have one eye on your bottom line. You need to fully understand your pricing structure and how much of an impact numerous scenarios could have.
For example, it’s always worthwhile knowing how many sales you need to make every week to first break even and then be operating in profit and it’s recommended that you also know the base cost of products and services, so to be able to offer discounts immediately as and when required.
And when it comes to this base cost, it’s important that you continually ensure the price you’re asking from your customers ensures that you can not only meet your initial costs, but that you are able to continue to operate in profit, as the more money you make, the more you can reinvest and develop.
Looking at those small businesses offering services rather than products, here we provide an insight into how you can effectively increase the cost of the services you provide without any major negative repercussions.
Any increase needs to be justified
As tempting as it can be to increase your prices purely for the sake of it, it’s absolutely imperative that any increase in your prices is completely justifiable. In theory, you’re well within your right to increase your prices at any time you wish, but it’s always advisable to be able to provide a full reason as to why they were increased if you were ever questioned.
The reason itself can be any one of a number of different things, from your base costs increasing which is having a knock-on effect through to your developed services needing more people involved, but it’s always preferable to give an honest and informative answer if you’re questioned about the increase, rather than simply saying “because I wanted to”.
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Customers should always be given notice
If you’re increasing the price of your service to your existing customers – which isn’t a necessity – it’s important that they’re given as much notice as possible. Apart from being a questionable business practice that would be difficult to be upheld if taken to court, just increasing the cost on your next invoice without informing the customer will have an immediate negative impact upon your relationship – and the reputation of your business as a whole.
You need to be able to deliver your services to your customers’ higher expectations
No matter whether the price increase was a necessity or not, your customers are going to be expecting to see a change in the service they receive. Being able to justify your prices is one thing, but being able to get your customers on-board is another and you need to be able to show what customers will be receiving extra for the additional money they’ll be paying out.
As with the justifed reasoning itself, this ‘extra’ work can be anything from a slight improvement through to a complete overhaul of your services, but you need to have something to present to your customers – and if you can take it to them first before they ask, chances are you’ll improve the relationship you have with them, as you’ll be showing pro-activeness, a quality that is so often lacking in the business world.
Consider small but regular increases
No one likes to see a huge hike in the amount of money they’re paying for a service, but this could be something your customers have to contend with if you’ve been putting off increasing the cost of your services for months or even years.
Dependent upon your target audience, it could be more beneficial to increase your prices slowly but regularly – but it really does depend upon your audience.
For example, let’s say you worked out you needed to increase your prices by 10% every year. Whilst it may be easier to just increase your prices once at 10%, it could prove to be more beneficial to increase them twice at 5%, as two smaller increases could potentially be easier to swallow for your customers.
Of course, two increases may make your audience have to deal with reworking their budgets twice, which is why it’s important you fully understand your audience, but it’s definitely something that should be considered.
Increasing the cost of your small business’s services is one of the most difficult things you’re likely to have to do, but at one time or another it’s going to be an absolute necessity. Work out what needs to be done, understand where the problems can arise and tackle the matter head on – with the right planning and preparation, you shouldn’t encounter any major problems at all.