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Companies wait far too long to raise pricing and ultimately wonder why they have cash flow problems. You can cut costs every day of the year, but you must ultimately raise prices in order to survive. Here are a few ideas to keep the increases isolated and more strategically intelligent and effective.
Price increase approaches to try (pick one or more):
- Customer profitability: Not all customers are equal. Sort them by profitability and only raise extraordinarily high pricing on those found at the very bottom of the list. Do this regularly. Doing so will automatically raise your overall gross profit margin. If they balk and leave, your margin still rises. By stirring up only a few, your profit statement will improve.
- Product/Service profitability: Sort all of your products or services by gross profit and raise prices on the lowest gross profit margin items that you sell. If it is difficult to raise these prices, change the product. Make improvements and change the customer perception. Whatever you do, get more money for these bottom of the list items, or drop them.
- Customers below the company average: Sort all of your sales by customer and address; those with overall gross profit margins lower than your overall company average. This means you only need to approach and convince half of your customers. Work from the bottom up first.
- Products/Services below the company average: Sort all of your sales by product or service, and attack those below the overall company average. Doing this allows you to target only losing products and services. Change them, improve them in order to raise their price, raise their price and diminish their demand or take them off your price sheet.
- Largest customers below the company average: If you wish to have the most impact with the fewest customers affected, sort all customers below the average gross profit margin % by sales dollars and work on increasing those customers comprising the most sales volume. You will get the largest impact versus raising prices on many customers.
Before you raise anyone’s price, remind yourself that they individually do not know they are posing a profit problem for your firm. You created the problem because your costs are too high, your price structure is too low or you did not raise prices in the past as you should have, on a more regular basis. Low margins are never the customer’s fault. It is your failing to get your cost structure in line with the market.
