Pricing strategies for profit

Transcript

* Transcript created by AI – may contain errors or omissions from original podcast audio

 One of the most effective ways to increase your profit is to increase your prices.  But how do you know if it’s the right time to increase your prices  and how much should you increase them by? What are other pricing strategies that you can employ if perhaps a price increase isn’t aligned for your business right now? Well, stick around my friend, because if any of these questions resonate with you in today’s episode of the podcast, I’ll be sharing my two cents on all things pricing.

Well, let’s first of all, have a bit of a think about some reasons why you might want to increase your prices.  Well, the obvious one, the elephant in the room is that you’re wanting to increase your business profitability. And I think we need to address the elephant in the room here, which is that there’s no shame in wanting to make more profit. After all, this is why we got started in business.  And if someone doesn’t want to pay the price that you’re offering, they can choose to go somewhere else. 

Another reason why you might want to increase your prices is that perhaps you have increased the value that you offer inside your service offering. So an example of this might be.  That you have been in business for a longer period of time, you have got more experience, you know, how to solve more problems.

Another example of this might be that you are wanting to invest in adding more value back to your clients. So perhaps you are wanting to. You go and do a course yourself, uplevel your own education and knowledge. Maybe you’re wanting to add extra value into the customer service experience. And to do so without compromising your profit margins, you need to charge more money on to the clients for that experience.  So this might be one reason why you’re thinking about putting those prices up.  Remember that ultimately the innovations that you invest in your own education, the customer service experiences are ultimately going to benefit the customers. So bear that in mind. 

Some other reasons why you might want to consider increasing your prices is because of market changes.  So I’ve spoken about this before on the podcast, actually, but one of the foundations of business economics is around supply and demand. And often what happens is that the market is pulling industries or prices in a certain direction. And what I mean by that is that if other people are putting their prices up, it essentially means that you are sitting below the rest of the market. So you might be noticing that market prices are changing and you might want to adjust your prices accordingly.  You may also have the opposite experiences where your, your suppliers have increased their costs  and therefore you are experiencing an increase in the costs that are coming through to your business. And what you’re seeing is that your profit margins are being squeezed or reduced. And unless you want to wear that loss yourself in your business, you might be passing that on to your own customers saying, Hey, all of my costs have gone up. And so in turn, I’m increasing my charges as well. 

Another reason why you might want to consider increasing your prices is because  In some respects, it actually improves people’s perception of your brand. You might think, why on earth would somebody want to pay more money for something? Sometimes it literally is that  it’s perception.  And let me share a few examples around how I myself have chosen not to work with a business because I thought they were too cheap. 

One example was that I saw that someone was doing lash extensions. I’ve never done lash extensions. And I thought, I wonder if, you know, I might try it was having a look. And this particular business was doing it for $50 Australian dollars, which given that I’ve heard, it can take a couple of hours to put these lashes on.  Made me wonder, are they using dodgy product? Maybe they’re not very good at what they’re doing. Maybe they’ve just got started, but I made the decision not to go ahead because it just seemed too cheap to me.  Another example, I was getting quotes from Facebook ad agencies and one particular agency that I went to quoted me about third of what most of the agencies were quoting. Now I know for some people, they might think, wow, that’s a bargain.  For me, it made me think, Oh, maybe they’re not very good at what they do.  I do not want to buy the cheapest seafood because I’m worried that I might get food poisoning. I don’t want to go to the cheapest hairdresser because I’m a blonde and I’m worried that they might use cheap product or not know what they’re doing. Doing and my hair might fry or go a funny color or fall out. So often people are making judgments of your brand based on your pricing for good and for bad.  I mean, at the opposite extreme, I went, uh, recently for the first time ever into a Chanel store and had a look at a handbag and I had no idea how much bags were. I’m not a labels person at all, but I was just curious to go and have the experience. And so I saw this bag and it was really pretty. And I said, how much is it? And they told me it was, I think, $15,000 around the $16,000 mark. Now for me at this stage of my life, uh, that’s not an aligned way that I want to invest money, but for some people, they love the fact that it’s at that price point because only a small percentage of people will be carrying a Chanel bag. It devalues a Chanel bag. If every man and his dog is carrying one around. So some people are happy to pay that premium price because that’s what they want. They want the premium and prestigious experience.  So it can actually be beneficial to your brand in some circumstances to increase the prices. 

And the last reason why you might want to increase your prices, well, it’s simply because you want to. A lot of times when it comes to pricing, I see business owners get really uncomfortable, go into justification mode and think they need to explain away, well, my costs increase. So that’s why I’ve passed it on. And I’ve, I’ve worn some of the loss.  You can charge whatever you like in your business.  Now, of course, that means that sometimes if you are charging a price that doesn’t feel aligned to the market or to the people who you are currently attracting through your marketing, they will say no to you. Right? So it has to be something that for you feels like a good price to sell your product or services out. And on the other side, it also needs to feel like a price where people are happy to hand over that money. Right. Right.  If your audience aren’t valuing what you’re selling at that price, they won’t pay it, but you can just say, I want to charge this much. And then your potential clients can either say, I want to pay that much, or I don’t want to pay that much. It’s all about that energetic exchange.  With those reasons in mind of why you might want to go down the route of increasing your prices.

What are some signs that it is time to look at putting those prices up?

Well, here’s a few telltale signs that it’s well and truly time.  The first one is that you haven’t increased your prices for 12 months.  So, there is a thing called inflation, which in general terms, basically means that everything goes up in price over time.  If you think back to when you were a kid, things were priced really differently than to what they are now. Houses, for example, food, things increase in price over time, and this is called inflation.  So if you aren’t increasing your prices by at least inflation, then you are essentially going backwards. 

Let me just say that again because the cost of everything is going up.  If you aren’t putting your prices up at least every year, you are basically going backwards.

Because the cost of living’s increasing, but you aren’t increasing your prices in line. So that can be one sign, another sign. And one of my students inside the profit Academy foundations, that’s my, my course where I teach all about business finances. And we do talk a lot about pricing in that course. She told me my clients always say to me, you are too cheap. Whoa.  If people who are buying from you are saying you are too cheap, listen to them because people don’t say that unless you really, really are below the market.  So if you hear that and hear that regularly,  chances are it’s good time to increase those prices.  Being cheap can be a good thing, but as I said earlier, it actually also can be a not so good thing.

Another sign that’s kind of connected to the above is that you are priced below your competitors.  And it doesn’t mean everyone in the market, because of course there are going to be some people who have a premium offering. Some people have a discount offering, but if you are sitting below people who have a like for like offering or business to yours and you are priced below them, that’s a sign it’s time to put your prices up. This can be shown to you in one of the ways, for example, perhaps. Every potential client is saying yes to you.  So, every single time you say it’s going to be this much to get your website built, every single person says yes.  Maybe that’s not a great sign. You want some people to be, you know, saying, Oh, whoa. Okay. That’s a little bit outside of what I thought it might be. If every single person is saying yes, then perhaps that’s a sign that there’s an opportunity to increase your prices. Because you shouldn’t be a yes for everyone.  And the last sign that it’s time to put those prices up is that there is a huge demand for your product or services and you just can’t keep up. So this is something that I see on Instagram quite often is that people will say I’m fully booked until November this year.  Now I know that looks really cool and wow, that must be really amazing. But to me, I think.  Why are you booked a whole year  in advance? Why wouldn’t you increase your prices? The demand is there. People want to work with you. And now you’re depriving almost a year of clients of the opportunity to be able to work with you because of where you have priced your products or services. So, if you are just struggling to keep up with potential clients, again, that might be sign that it’s time to put those prices up.

The next question that I often get asked in this space is how much should I increase my prices by? 

Like, is the, is the golden amount 5%? Is it 10%? How much can I put them up at any one point in time?  Well, here’s my thoughts on this. I don’t believe there is a hard and fast rule.  Sometimes you might be so far. Below what you should be charging that you could double your prices overnight and still be winning clients.

I had an example of this. One of my clients that I worked with ran a digital marketing agency. She was extremely busy.  And when I looked at her prices, I was shocked. And I said, I’m surprised you are even able to make money at this price. And she said, I barely am by the time I pay my team members, I’m barely making any money.  And so we put in place a strategy where she actually increased her prices overnight by 120%.  So more than double her prices.  Now, when you go and do something big and audacious like this, there always is that risk that people will walk away. And actually that is what happened to her in full transparency. She lost about half of her clients. They said, I can’t afford to work with you at that price. I’m not going to work with you any more moving forward. So she ended up losing about half of her clients. Now, her and I had done a lot of work around mindset. We’d spoken about some risk mitigation strategies around all of this. So when it happened, this wasn’t a big shock for her. We’d spoken about it quite a lot and we had our game plan in place, but after this unfolded and she settled into her new cadence, she had this moment where she said to me, Clare, I’m actually making the same amount of money. I’m making the same amount of profit and I’m working half the hours that I used to.  And that was a bit of an aha moment.  And this is one of the reasons I guess in why price increases can be so effective in increasing your profitability, because this client of mine. And was working half the hours and still making the same amount of money.

Now there’s a lot more complexity to increasing your prices. You don’t just go out there and put them up willy nilly without having a strategy or a game plan in place behind it. But I just wanted to highlight that you don’t necessarily need to increase your prices by 5 percent or 10 percent at a time. Sometimes you can have significant price increases at a point in time, provided it’s done in a strategic way and with a bit of a game plan in place. 

There’s another little tip that I want to give you here, which is that you don’t need to put your prices up across the board all at one point in time. For example, you could just increase your prices for new clients coming to your business or your brand and either not increase your existing clients or only increase them by a minimal amount, not bring them up to what you are charging new potential clients. So that’s a little tip on the price increase front. 

So what about if increasing your prices just isn’t right.

So perhaps you, it doesn’t feel energetically aligned for you. Maybe you actually already are at a real sweet spot with your pricing and you want to play around with some other pricing strategies that you can employ if a price increase isn’t aligned for you at this point in time? 

So one idea is that you can have a product that is a loss leader. So a loss leader is essentially something that runs at a loss that doesn’t make you any money, it might, might actually lose you money. Now in my own business, an example of this is my book, my book called intentional Profit. I sell my book for around $30 Australian dollars.  And you might think, how much does it cost to make a book? I invested so much money into the creation of that book. I recorded a whole podcast episode around it. So I will link it in the show notes for today’s episode. But essentially by the time I paid, I worked with a copywriter, a ghost writer. I worked with a publishing agency. I worked with a publicist. I did a book launch that again, lost me a ton of money. And at the time of recording this episode, even though I’ve sold. Thousands of copies of my book, it’s still lost me money. And I knew that that would be the case because a lot of people, a lot of business owners don’t necessarily make money from the profit of a book, but it is part of an overall marketing strategy. So if you grab a copy of my book, intentional profit, you will notice throughout the book that I talk about my programs. I talk about my course, and basically this becomes part of my marketing funnel. 

You may also see these in other ways, online people who run free trainings, they free masterclass, a couple of, uh,  Big known names in Australia run massive free events where you go along to this event for the day and they speak on stage and add a ton of value and they, I can assure you, they are running those things at a loss in and of itself. Because it costs money to hire a venue, have your team there, do all the planning, do the event management. But what they’re doing is they’re creating this loss leader product as part of an overall marketing strategy, because people are going to come along to those days and say, Hey, I want to join your program, or I’d like to work with you. That’s an example of how you might have a loss leader product in your product suite. 

Another way that you can price again, if, if pricing isn’t feeling aligned to you, is that you go the volume route. So what I mean by that. Is that you are not looking to make a huge margin on each sale, but you are looking to turn over a high volume.

So an example of this in the product space would be if you sold products into a big supermarket chain that was right across the country.  Now you might not make a lot of margins on each individual product that you sell, but because this is happening on mass on scale, you make your profit in that way because of the volume that is there. If you were in the online world, an example of this might be a membership where you sell your service to many people at the same time.  So rather than having one client at a time that say you’re charging $5,000 a month to, you might have a hundred clients that you are charging each $50 a month. So it’s an easier decision for someone to say. Yeah, I’ll sign up for a $50 a month membership compared to signing up to work with you at $5,000 a month. So, if for example, you are a, you know, a fashion stylist, you might work with a really high end client. I don’t know, a celebrity or something, and charge them a high price.  Or you might have an email newsletter that goes out with the latest style trends. And again, you just charge a low price point to offer that value, but on scale. 

An example of a different industry. Again, I used to go to a place called the blow dry bar when I lived in Sydney. And at the time you could get a blow dry at the blow dry bar for $40 dollars.  So I used to go all the time. I would go at least once a week and get my hair blow dried because it was such a great price point and they were always really heavily booked as compared to other hairdressers that charge double that price. They might not book in blow dries as regularly, but this particular company, they worked on volume.  So those are some other ideas around how you can price. Even to run at a loss in some areas of your business. So long as you’re doing it with intention and you have a game plan of how you are going to recover those losses or how you can price to sell at volume by using a lower price point.

So all in all your price is a really important factor in your business profitability. And there are numerous ways that you can use your pricing strategically so that you can maximize your business profit.  I hope you enjoyed today’s episode of the podcast. If you think your audience or a business friend of yours will benefit from this episode, please make sure that you share it with them.

Thank you so much for tuning in to The Clare Wood Podcast, and I look forward to chatting to you again next week.

* Transcript created by AI – may contain errors or omissions from original podcast audio