Know Your Worth: Is it Time to Increase Your Price?

We don’t like to talk about money in the UK, but when you are running a business it is vital! So often we see business owners afraid to bring it up, nervous to ask for pricing feedback or too worried to increase prices. The humble entrepreneur knows their worth but struggles sometimes to articulate it, or in this case put a big enough price tag on it! Are you one of those underselling your offering? Do you know when to consider increasing your prices? A McKinsey study found that if companies increased prices by just 1%, and demand remained constant, on average operating profits would increase by a whopping 11%! What business owner wouldn’t want that?

So, how will you know when is the right time to increase your price? Ask yourself the questions below.

• Are you no longer making break-even, or are close to not doing so? You have to increase your prices for the business to survive and be viable. This can occur due to a range of factors including increased living costs, inflation, cost of materials, insurances, pension contributions, tax. You have nothing to lose by raising your prices, you will either find you have a viable business, or you don’t. Of course, there are other factors that could be affecting your business performance and there are also ways to increase the value (real or perceived) of your product or service. For example, by improving the offering or building a stronger brand, which you should also explore. We are assuming here that the core business is viable and that you already have lots of paying customers (they are just not paying enough to cover your costs).
• Are you always fully-booked, sold out or have huge waiting lists? The demand for your offering is so strong and your value so clear that you can risk putting your prices up and potentially losing a few customers. You have likely been underselling your offering for a while!
• Have you developed an improved service or product? It will be very clear to customers where the added value is and they will be prepared to pay more for it. You must be very aware of what value means to your customers and hopefully will have done your homework when developing your offering! What you perceive to be added value might not actually matter to customers.
• Has your brand become so strong and powerful that customers consistently choose you over competitors? Maybe your brand is built on trust, honesty and transparency and has a clear commitment to environmental sustainability or social causes. Customers are prepared to spend a little bit more with you and know their money is doing good or supporting someone/a company they share values with. They identify more with you than competitors.
• Have you been in the industry long enough to have built up a strong reputation, so strong that you barely need to do any marketing or lead generation? Customers come to you via word of mouth and are unlikely to be too concerned about the price. They are looking for quality and reliability.
• Have you created a lock-in effect where your customers might find it difficult, time-consuming or costly to switch to another company? Perhaps you have a system that has been analysing their data and is providing invaluable ongoing insight to them. Maybe you have built up so much trust that they wouldn’t want to ever use another company.

If you answer yes to any of the above, it’s probably time to review your pricing strategy. There are exceptions where it might be difficult, for example in price sensitive, commoditised or saturated markets. More often than not though, there is an opportunity to significantly boost profits with a simple price increase! So what are you waiting for?