It’s inevitable. At some point in running any business we have to think about increasing prices.
We do this to keep up with the rising costs of suppliers, materials, energy bills, not to mention wage increases and all the other operational expenses we incur to keep the business up and running.
For most business owners, we try to absorb as much as we can before we have to pass this on the customer.
Some price increases from suppliers may seem small at first.
- An extra 50p on a subscription-based platform.
- Small increases in postage and packaging costs.
- The minimum wage rises by a small percentage.
But these small increases all start to add up and before you know it your profit is being firmly squeezed.
What should you look at first?
As business owners we first look to see if any cost increases can be complemented by making a saving elsewhere. It’s good practice to go through all your outgoings on a quarterly basis to check that you still need everything or whether anything can be reduced or cancelled.
Once you have made your business a bit leaner, it’s time to look at the potential of raising sales prices.
Raising Prices
Revising prices is always going to be needed and has now become the norm against the pressures of such an inflationary market.
Because of this, consumers and businesses are getting used to prices being reviewed on a more regular basis in the bid to ensure there is a fair value exchange. Many small businesses worry about increasing prices as they don’t want to outprice the market, but subsequently they end up not charging their worth.
That’s not to say that raising prices comes easily.
We worry about the impact this will have on our customer base. Will they be inclined to shop around and find cheaper elsewhere? Will we lose their custom? Is it going to be detrimental to our reputation?
But if we want our business to survive in the long-term, then we need to make tough and sometimes uncomfortable decisions along the way.
The reality is that most people are understanding and share a loyalty with companies they work with or buy from. They appreciate that cost increases will need to happen from time to time and the likelihood is that they will stick with companies they like and are happy to do business with for the sake of a few quid.
Those that don’t stay with you probably weren’t that loyal anyway or didn’t appreciate the quality of what you provide.
It’s likely that by increasing your prices you will still maintain your margins, you could even grow them too.
Looking at the market and comparing your prices and service to competitors is imperative. This should also be done at least once a quarter.
Here is what we have learnt:
When we looked at the market a few years ago, we found that we were really undercharging and some fees were half, even a third in some cases, of what they should have been when compared to other accountancy firms operating in the same space.
We realised that we had been hugely undercutting our services and needed to make some changes. It’s about weighing up how to maintain profitability while keeping the value you want to add and providing a service you are proud of.
Once we had defined the price point, we needed to inform clients.
This could have been the awkward bit but in our case our customers were hugely understanding and could see where we were adding value. We started by explaining the process we had undertaken and spoke to our customers about why we needed to increase our prices.
Speaking business owner to business owner helped and they too were invariably going through similar thought processes of their own.
We gave our clients plenty of notice and had open conversations to show the added value we bring to their business. We also implemented gradual price increases for existing clients to help ease the pain, giving them a loyalty discount to step up over a period of 1-2 years. New clients were immediately charged the revised rates.
Instead of clients kicking up a fuss, it opened up the opportunity for them to have discussions with us about how to go about their own price increases. Many businesses take operating cost increases on the chin, but this can have a huge impact on profitability over time. Many businesses can leave their costs the same for years before making any changes. It can even get to the point when it hikes the price, or closes the business. We want to avoid getting anywhere near this point.
Prices have to keep up with inflation at least, that’s just the way it is.
Keep an active eye on your books, closely monitor what is coming in and going out and make tweaks to adapt along the way.
We can provide regular analysis of your accounts and have meetings to discuss how you could grow your business and make it more efficient.
Accountants are more than just filing a tax return. With a bird’s eye view of your company, we can often spot efficiencies and work with you to help implement these.
Our founder, Cheryl Sharp, recently spoke to SJP Wealth about how to best implement price increases. Read more here
