Every business owner invests time in evaluating his or her product and determining the optimal pricing. Finding the right price point where supply and demand intersect will allow you to maximize revenue.
Establishing this sweet spot can be tricky though, especially for small businesses. Not only do you need to understand your product and accurately estimate its worth, you must take into account many factors. If you find yourself wondering whether to increase prices for your small business, keep in mind these elements:
- Competitors’ Pricing
If raising your prices would put you far above the competition, but your product itself stays the same, you may alienate some customers who cannot afford your new prices. If you have a lot of competition that offers far low prices, your sales may suffer if you increase prices too much. On the other hand, if the prices your business offers is much lower than that of competition, you might be losing money. Be sure to evaluate the pricing models utilized by other companies in your industry before hiking up any prices.
The price that you offer clients should reflect the quality of services provided. If you are able to add value to your products, you have a strong reason to increase prices. This could be an upgrade in components of your new line of products or adding warranties and customer support with purchases. Customers will be willing to pay the difference and appreciate the extra value that you can offer. Just be sure to make clear how you have improved the product so that your customers understand the benefits.
Our economy experiences a gradual state of inflation where the cost of living increases. The rate of inflation may be quite slow, but if you have been in the business a long time and not increased prices, you should definitely consider raising your rates. With inflation, you are losing money if you do not increase prices over a long enough period of time. Inflation affects the pricing of all products so customers can understand. Just do not spike prices too quickly or customers may get peeved.
- Supplier Prices
Sometimes the price of manufacturing or producing a product will increase over time. Maybe there is a decrease in supply of a necessary component so suppliers have increased prices. Or maybe you are required to change suppliers that do not have as good of deals for parts. This will directly affect the amount of money you make per item sold. In order to not lose too much money, you have to respond accordingly by increasing your own prices. If this is the case, raising the prices for your product is understandable and necessary.
After you have made a decision whether or not to increase pricing for your small business, go ahead and make the necessary preparations and changes. Need capital to buy in bulk and get a better price on inventory, biz2credit.com can help. Our representatives can help with working, cash advances, business lines of credit and other small business financing options.