Are Your Prices High Enough?

by Guest Expert

One of the fastest ways to increase profits for many businesses is to increase their prices.
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I had an interesting experience of doing this over 20 years ago.


It occurred when I produced by first sales training newsletter which was two pages long.

My intention was to make it a weekly training programme and write 48 newsletters a year.

When I wrote my first two sample newsletters I asked a good business friend of mine what I should charge for it.

My friend suggested I charge $100 for a year long subscription.

I then made appointments with 40 of my existing clients and showed each of them my newsletter idea.

To my surprise and delight 39 of these clients liked what I showed them and took out a year long subscription to my sales training newsletter.

I continued showing my sales training newsletter to sales managers in a variety of different organisations and within three months I had over 100 subscribers.

I soon discovered that writing each newsletter was taking a good amount of time each week.

And then I worked out how much money I was actually making from the whole project.

100 subscribers at $100 a year each was only $10,000 gross sales a year before costs like printing and postage.

I was only earning about $200 a week before expenses from my newsletter and I began to wonder if it was really worth it.

(I did find that one benefit from producing my newsletter was that I was getting some good speaking engagements each month from several of my subscribers who liked my selling ideas.)

So I did an experiment where I changed the price for a one year subscription to $195.I then showed the newsletter concept to 20 more business people and 17 bought it. (This was very encouraging because I had now doubled my income with no extra effort.)

Over the next two months I tested half a dozen different prices.

These varied from $195 right up to $795 for a one year subscription.

My best results seemed to come at $495 for a one year subscription.

(I made a sale to about one person in three at this amount.)

Over the next six months I added another 200 subscribers to my newsletter, and all now paid $495 each for a one year subscription.

This was great for me because I was now making five times my previous income from exactly the same product.

This was a great experience in charging higher prices and increasing my profits quickly.

And that’s the purpose of today's message.

I'd like to share some proven strategies that you can use to charge higher prices and increase your profits.

Let’s get started...

The first strategy is to simply put up your prices:

Example One:

I have a good friend who is a very clever banker, accountant and business person. He has an amazing ability to go into large companies that are losing money and turn them around financially in a few weeks.

My friend finds that in many cases a simple increase in prices could be all it takes to make a company profitable.

So that’s what he does.

He immediately increases prices on certain products and services. Many of the people who work in the company he is turning around will tell him all the reasons why this is a terrible thing to do.

These people tell him things like “Customers will leave; sales and profits will go down and it won’t work”.

My friend finds this is usually not true and he told me about a large freight company he had turned around.

The freight company was turning over about 30 million dollars a year in sales and was just breaking even each month.

He took a good look at the company and found that the service they provided was one of the best in the market.

The clients loved the company and what they did.

So he immediately increased prices on all their freight services by 10%.

He told me that the freight company had several thousand customers and only three of them complained about the price increase.

Only one of these complaining customers took his freight business elsewhere.

My friend told me that this freight company now started making profits of several million dollars a year as a result of this 10% price increase.

The second strategy is to become an expert:


Example Two:

At 19 years of age I owned my first business. It was a carpet cleaning business and I knew very little about pricing.

So when I quoted on a carpet cleaning job, I would work out roughly how long it would take me to do the job, and then multiply that by what I thought was a reasonable hourly rate.

After six months I found I was working very hard and making virtually no money. So I sold the business.

Yet a few years later I met another person who owned a carpet cleaning business and we got chatting.

I asked him how it was going and he told me it was the most profitable business he had ever been involved with.

This person charged prices that were between two and five times dearer than what I had been charging.

He went on to explain that he had also taken the time to become an expert on cleaning carpets.

He knew how to remove every type of stain you could think of and he was extremely professional in everything he did.

His clients loved his carpet cleaning service and were very happy to pay the high prices he charged.

The third strategy is to offer a different 'package'

Example Three:

About 25 years ago I decided I would like to become a paid business speaker on sales and marketing.

I set a price of $300 to give a one hour talk and persuaded about 20 sales managers that it would be a good investment to hire me.

I then presented my one hour talk on sales and marketing.

Each talk was well received; however I soon discovered that I wasn’t making much money doing this.

It was actually taking a lot of time to sell each talk, prepare each talk and then travel to and from each client to present each talk.

I then decided to ask a very successful sales trainer and business speaker for advice on what I was doing.

Des had been speaking on sales for about 20 years and his fees were between $1,500 and $5,000 each time he spoke.

He was also booked up months in advance.

Des explained that I needed to first of all raise my speaking fee to at least $750.I also had to give each talk a title which was the benefits a person would get from hearing it.

Des then suggested I provide a handout covering the key ideas in my talk and give this out at each talk.

Finally Des told me I should make each talk for either 45 minutes or 75 minutes but not for an hour.

Des explained that an hourly fee of $300 an hour seemed expensive to just give a talk.

However a $750 fee to give a 45 minute training session on “Five ways to increase your sales by 25% in the next three months” did not seem as expensive.

I put into action all the suggestions that Des had given me.

Over the next few months I earned an extra $15,000 from giving a number of 45 minute sales training presentations.

I gave each presentation a catchy title, gave out informative handouts which covered the key ideas I presented, and charged $750 for each one.

My clients loved what I did, and I loved the fact that I was now making a lot more money giving these presentations.

I also found that I could tailor my prices depending on the group I was talking with.And for some 45 minute presentations I was paid between $1,000 and $2,500 for doing them.

Is there some way you can 'package' what you offer differently so it has higher perceived value for your clients?

The fourth strategy is to charge more when price is not a real issue:

Example Four:

I visit a number of different service stations to buy petrol for my car.

The price that most of these service stations charge for petrol is very similar.

However inside many petrol stations is a large store with a wide range of other products I can buy.

I sometimes buy bottled water at a service station and one day I took a close look at the price I was paying.

The bottled water was at least 40% dearer than what I would have paid if I had bought it at the supermarket I shop at.

However I still bought the bottled water because it was convenient.

Imagine that, I am happy to pay 40% more for a product that I could buy much cheaper elsewhere.

The interesting thing is that this same bottled water is still priced differently at each service station.

There is a price variation of at least 25% between the various service stations I go to for this same bottled water.

Some service stations have obviously put up their prices and some have not. 

Does this price variation make any difference to my purchase of bottled water? No.

Does it make a difference to the profits each service station makes? Yes.

Here are some more comments on putting up your prices:

If you are becoming better at what you do every month, you are now in a position to provide more value for each client you serve.

When you provide more value, each client now receives much greater benefits:

So you should charge more for the extra value you are providing.
And a good way to do this is to put up your prices.

You may want to increase your prices firstly to new clients only:

You may want to provide something extra with your increase in prices:

When I was speaking to groups on sales and marketing I began using informative handouts as an added value resource.

If you do provide something extra, try and make it something that has a high perceived value, but doesn’t cost a lot to provide:

Example:

A pest control service used this idea of providing something extra with a high perceived value.

They would offer a commercial pest control service (insects, rats, fleas etc) for restaurants and hotels.

They added a unique guarantee to their service.

Firstly if the hotel or restaurant lost a booking because of a problem with pests, the pest control company would pay for that lost booking.

If the hotel or restaurant was ever closed down by a health inspector for a pest problem, the pest control company would reimburse them for any lost revenue they might have had.

The guarantee went on to cover 10 other points.

This pest control company is twice as expensive as anyone else in their field. (They also have 80% market share in every area they go into.)

Best of all they have a simple insurance policy that covers them for any money they might have to pay out.

This is a great example of increasing your prices and providing something extra with a high perceived value that does not cost much to provide.

In this case the something extra is the unique guarantee that is covered by insurance.

It is always helpful to test your prices:

Sometimes a higher price can actually result in more sales.


Example:


There's a great story about this in the book called ‘Influence’, by Robert Caildini. Robert wrote about a retailer who sold turquoise jewellery in a gift shop in Santa Fe, New Mexico. The jewellery didn't sell well.

So, the owner decided to cut prices and clear the jewellery out.

Before going on vacation, she left a note telling her clerk to cut the price of everything by half while she was away.

But the clerk misread the note. He thought the store owner meant that prices should be doubled! So he marked prices up, not down. 

When the owner returned from her trip, she was amazed to find that just about every piece of jewellery in the store had been sold.

Why? Because the prices she had used before the change weren't in synch with the jewellery’s perceived value.

When you are focussed on creating value for your clients your products and services become more valuable.

So you should definitely charge more for this value.

Not charging for the value you provide is probably costing you big money:


Example:

Many years ago I sold a personal improvement seminar for business people.

Clients had the choice of attending a public seminar with other people or having it presented just for the people in their own organisation.

The seminars were video based, so a short video was first shown and then some exercises were given by the seminar facilitator.

I used to charge the same price per person regardless of whether it was a public seminar or a personalised seminar just for one organisation.

However a new licensee I hired had quite a different viewpoint on value.

Because my licensee had his own area to work in he could price these seminars any way that he wanted.

He felt that providing a personalised seminar just for one organisation was a lot more valuable and that they should pay more.

He offered to facilitate these seminars for each client and he then charged them a facilitation fee to do this.

This fee was between $5,000 and $10,000 for each seminar he facilitated. His clients were very happy to pay this fee and felt they had received great value from having the seminar being presented just for their own organisation.


Each seminar took two full days or four half days to present. My new licensee was making an extra $5,000 to $10,000 for each personalised seminar he was providing.

In his first six months he facilitated ten of these seminars and made well over $50,000 in extra income.

He then took each public seminar and changed the price on that as well.

He tripled the price that I was charging and sold just as many seminars as I was selling.

I didn’t increase the prices I was charging at all.

I estimate this failure to put up my prices cost me at least $250,000 in lost income over a two year period.

Action Exercise:

If you are a business owner or self employed professional I invite you to look at how you can increase your prices. 

This might be the fees you charge for new clients that use your services.

It could be some of the products or services you sell in your business.

It could be the hourly rate you charge. 

Raising prices can be one of the fastest ways to increase your profits.

And it is well worth testing in many businesses.

Warm regards

Graham McGregor 

'Price is what you pay. Value is what you get.'
Warren Buffett

 

www.TheUnfairBusinessAdvantage.com 


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