Thursday, November 6, 2008

Going Up

How to raise prices without losing customers by Megan Pacella

After years of educating small business owners about the rules of raising prices, Cliff Ennico had no choice but to take his own advice when skyrocketing fuel and food costs squeezed his bottom line. ...

"Small businesses are all about cash flow," Ennico says. "Any cost increase that’s not covered by an increase in revenue cuts into your profit margin--and that cuts into what you can live off of each month."

... But when it comes to raising your prices, there’s a bright side to the downturn, Ennico says. "Fortunately, everyone understands that the costs of things are going through the roof," he says. "You can fall back on the explanation that your costs are increasing just like everyone else’s."

Although customers are expecting costs to increase, you’ll drive business away if you boost prices without warning. Ennico suggests choosing a date for the price increase, and then advertising the increase on your company’s Web site. ...

..."Look at what your competitors are charging, and then try to charge 80 percent to 90 percent of that amount," Ennico says. "That way you can still tell your customers they’re getting a bargain."

Raising your prices is no easy task--especially when it comes to dealing with customers. But if you absorb all rising costs, you could jeopardize your business. "The danger is working below cost," Ennico says. "The cost of doing business is increasing, so you have to keep a close eye on your numbers. A lot of people make the mistake of not raising prices during inflationary times, and then the money in the bank starts dwindling."

That doesn’t mean you should institute a price hike just because everyone else is. If your business doesn’t have cash flow problems, then your prices are probably fine where they are. "You can’t be timid, but you also have to be ethical," Ennico warns. "The bottom line is that people won’t work with someone they can’t trust."

Raise Them Right Secrets to increasing your rates

Warn customers. When delivering bad news, it’s important to deliver it in the most customer-friendly way possible, says attorney and author Cliff Ennico. ...

Beat the competition. ... Whether you offer lower prices, higher value or other special services that beat the competition, make sure your customers know why they’re doing business with you.

Update marketing materials. ... The fastest way to lose potential customers is to demand higher prices than what you advertise.

Raise prices high enough. You might be hesitant about raising your prices, but if you don’t increase them enough you might be forced to do it again in a few months. Frequent boosts in cost could make you seem dishonest, so make sure you’re accurate the first time.