Question: What are some practical ways to determine if I should be increasing the cost for my product/services? (one tip!)
Question by: Andy
How Much Is a Lifetime Worth?
"Most people never really think about the lifetime value that their product or service offers. If you help people save thousands on their taxes, can you charge a premium? I bet you can because their is inherit value on what your service offers. Think about that value and raise your prices accordingly; you will be surprised at just how low you are valuing them right now."
Consider Your Profit Per Client
"If you have many clients at a lower margin, and cost is the only element with which you're attracting new clients, it's time. Pick a niche, dominate that niche based on your expertise or advantage, and raise the prices. Be selective in who you sell to or work with, give them the best experience and the most value, and proudly charge for that experience and value that they can't get elsewhere."
Just Do It!
"If the idea of increasing your costs is already a question in your mind, it's time to just do it. There will obviously be customers that will fight it, and some could leave, but you don't want those customers anyway. Those customers aren't loyal customers and would be gone anyway in the future if another provider undercuts your pricing. Never compete on pricing, it's not fun."
Abide by Supply and Demand
"In consumer goods, I strongly believe in the laws of supply and demand. You can not rationally increase the cost of your product or services without seeing an increase in demand from the target market. Ideally, any improvements in quality, service and offerings that your company makes will be noticed, and in turn drive demand and push your product or service into an appropriate pricing structure."
Determine the True Value
"There's no such thing as overpriced products/services if the value is there. The idea here is simple: if you believe, through and through, in the value of what you provide, you'll know what it's worth, based on your financial needs and wants."
Crunch All the Numbers
"Figure out your ideal hourly rate. Take a hard look at how much time you're actually spending on the services you provide. Are your flat fees actually translating to the hourly rates you deserve? Resources like Freelance Switch's Hourly Rate Calculator and Laurie Lewis's book What To Charge can help."
A/B Test Your Pricing
"The best way to test increasing your product cost is to increase your product cost and test your results against your previous price point. That could mean simple webpage A/B testing, or going into a new market with a new price and seeing the result."
Ask Your Customers
"The best way to figure out if the customer will pay more for your product is to simply raise your price and see their reaction. If they say yes, you just made more money. If they say no, tell them you will give them a special discount. If you're a web company, simply set up a landing page with higher prices. If your conversion rate doesn't go down, then keep upping the price!"
Test Different Price Points
"You need to sell your product based on the customer's willingness to pay, not on your cost of production. So try to segment your market and target different pricing to different customers. See if the market will bear a higher price, then you will have your answer."
Watch What Happens
"The quickest way to increase revenue is to increase your prices. Most of my companies have gone through numerous pricing iterations. The quickest way to find out whether there's more price elasticity than you think if to double your prices and watch what happens. Don't bother with surveys, as nobody will tell you that they are willing to pay more."
Communicate the Justifications
"Before increasing prices, think about how you could justify increasing prices. Is the product currently undervalued? Could you add more to increase the value while increasing the price? Is this a new branding tactic? Once you know good reasons why you should increase prices, communicate that to your customers. Without proper justification, your customers will think you're just greedy."
Don't Forget Differentiation
"You should set the price of your offering based on consumer demand. For instance, if there is a high demand for what you offer, you can increase your price. It will also test to see if people are willing to pay more for your products or services. If your product is highly differentiated, then you typically won't have to lower price to meet demand."
When Your Costs Increase
"It's evident that as time goes by, products get pricier and continue to increase where it cost you the business owner. If you're a fence installer and you sell vinyl fencing, the product increases because it's made with petroleum and it happens to be in demand. Your cost goes up to purchase, causing your asking price to increase. You need to make sure customers understand this too."
Make Sure Someone Complains
"As bad as it sounds, if no one is complaining about your cost, you may want to raise it. Sure, one goal is to make customers happy, but part of a business is bringing in profits. If 100 percent of your customers are okay with your price, see what happens if you raise it. Maybe only 99 percent will still be happy, but you may be much more profitable and have a much stronger business overall."
Research Your Competition
"Easiest way? Research your competition. If your price is lower, and there's room to move up without losing your competitive edge with pricing, you can do so. At my bar and restaurant, the Village Pourhouse, I noticed my bar prices were close to competitors but food prices, which is secondary to my business model, were too cheap compared to others. So I increased food prices by 10 percent. "
The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world's most promising young entrepreneurs. The YEC recently published #FixYoungAmerica: How to Rebuild Our Economy and Put Young Americans Back to Work (for Good), a book of 30+ proven solutions to help end youth unemployment.