ARE YOU AFRAID TO RAISE YOUR PRICES?

Well, you’re not alone. Many sales managers and CEOs experience worries when deciding to raise prices, even though they are forced to raise prices to gain profits. Often they are afraid that they will lose customers or have difficulties attracting new ones. Should you be afraid? I don’t think you should. Many companies that fail do so because of a fear of raising prices to a profitable level. Raising prices is a natural business activity and should be treated in the same way as you treat any other activity, as long as you have a good reason to do so. There are some issues/ideas I would like to share with you regarding raising prices:

It is every company´s right to raise prices, as long as the company can motivate the action and is prepared to handle the consequences. If you are afraid to raise your prices, you can try to bundle products and services to increase your average sales price and average profit.

If your company’s products or services add more value to the customers than the competitors, then it is your obligation to raise prices. Adding more value in your marketplace should in most cases lead to higher profits for your company.

Raising your prices will help you get rid of unprofitable customers, which in turn will result in positive effects on your cash flow and income statement.

Give the customer alternative offers with different prices for different products or services, which will make logical sense of your pricing. Try to provide a higher and lower offer on each side of every offer. 

Higher prices are very often associated with higher perceived quality.

 

Well, I hope you have got some perspective on pricing after reading this post, and if you´re still afraid of raising your company’s prices, then maybe you should examine the possibility to add more value to your customers so you can raise prices without any worries.

DEAL OR NO DEAL AND THE END OF CASH FLOW MISERY! 

Do you offer discounted deals just to acquire customers? If so, please stop doing that immediately. The reason for that is that low priced contracts or offerings many times results in low profits and in the end negative operational cash flows, even if you succeed in acquiring the customer.
 

I would like to call this act of conduct for “the cash flow misery paradox”. Your purpose is to get profitable customers, so to become interesting as a partner you lower you prices or offer attractive terms to get them instead of the competitors, wich in turn results in a stream of low margin deals and negative cash flow. Results that you didn´t have in mind in the first place.

Once you have attracted customers by low prices or attractive terms that are bad for your business in the long run, it is very hard to get them to buy from you again under regular terms and prices. You´ll probably want be able to renegotiate the contracts to satisfactory and profitable levels. That will seldom happen since the customer chose your company as a partner because of the lower prices in the first place. The customer will sooner or later switch to a cheaper supplier.

The low pricing strategy is successful only when your product/services have few or no competitive advantages, or where economies of scale are achievable with higher production volumes and your company intends to dominate that segment. Otherwise it is financially a very unprofitable strategy and can put your positive cash flow and the company on jeopardy, something you can avoid and be without.