We all know that if we sell our goods or services for more than they cost then we make a profit, right ?

If we want to increase our profits we try and keep our costs low and increase our sales. So far so good ?

But when you think about increasing sales, is the first thing you think about selling more, or increasing the price ? We find that most of our clients initial thought is about selling more goods or services.

Selling more of your services or products, generally means more cash tied up in stock or WIP, more customers and maybe more employees, and so it should be part of your ongoing business strategy. You don't want to expand too quickly and run out of cash, so if this is your strategy, then you should have a good business plan which includes a detailed cashflow forecast that you regularly review, to make sure that you don't.

On the other hand if you could put your prices up by just 5% (or don't discount your current prices), and, you turnover £500,000 then you can potentially increase profits by £25,000, with limited additional work.

Increasing your prices can be daunting, and there are many things to think about when considering pricing but here are our top 3 ......................

_1. Keeping up with inflation

There are many, many businesses that set their prices once a year and edge them up by 3% to 5% to keep up with inflation, so not to be any worse off. Right ? Could be, but it could be wrong !

If you are selling your goods or services for £100, and you could sell them now for £120, then in a years time when you increase your prices by 5% to £105, you will have left another £1 in the customers pocket ! How ? The price that you could get has gone up 5% to £126 so you are now selling for £21 lower rather than £20.

2. Know your customer (KYC)

No its not about getting them to give you a photographic ID and a copy of a recent utility bill (although we will need to ask for them when you first use us) its about knowing what type of customers they are, and setting your price to them individually. This is generally more suited to those of us providing a service, as we meet the customer, and so can better assess things such as whether

- they price sensitive. Do they shop around ?
- they engaged you, or bought your products before, and so may trust you to deliver and so they value your goods or services more than a competitor ?
- how fast do they need it. Is it out of hours ?

3. What about your competitors ?

Its a small Island and unless you happen to be Condor or one of the utility Companies then we all have competitors. You probably know and are friendly with some of them, so you should be able to work out what you do that is different to them (If you don't do anything differently then you should) and highlight that extra value in your price.

It could be as simple guaranteeing a fixed price which not only takes the risk away from the customer, but also shows them that you have done this before and so are confident in your price, or, bundling up your services to add extra value to your customer.

We also find that offering a 100% money back guarantee to our clients shows our confidence in our service to them. Your customers are not experts in what you do, so giving them confidence that you know what you are doing (You wouldn't be offering a money back guarantee if you didn't, right ?)

Conclusion

Getting your price right, to maximise your sales income potential can be difficult, but we know that if you don't have a process to regularly consider how you are pricing, then its easy to fall back on the once a year 'inflation adjustment' method. As part of our regular strategy meetings with clients we discuss the pricing of your goods or services, and can run 'what if numbers' to forecast the effect on profit, and then, we can see the effect after we prepare the next set of management accounts.

And remember if you are still not convinced about pricing, the next time that you buy a can of soft drink when filling up with petrol, think about the price. The price is higher than what you can buy it for in the supermarket, or the discount shops, because its convenient and it satisfies your need then and there, so it has more value to you than having to wait and buy it cheaper later.

Its not different for your customers and your goods or services !

As always any comments and experiences are welcome.