Would you like to increase your business’ profit 100% —
with little or no additional risk or effort?
The fastest way to generate more net cash is to raise the price you charge for products/services your business sells.
Consider changing pricing under the following circumstances:
- When you are introducing a new product or service.
- When there is an addition to your product line that may affect the pricing of older items already in the line.
- When you wish to penetrate a new market or increase market share.
- During periods of inflation.
- During periods of depression.
- When you are about to change your strategy.
- When the product is in a different phase of its life cycle.
- When you are testing to find the “correct price.”
What do you do if no one buys your product or service at your price? Here are five alternatives:
- Lower the price: You accept less profit on each item in the hope that more of your product or service will be purchased.
- Increase the price: Reposition your product in comparison with your competition’s products, so your customer’s perception of your product is better than they view your competition’s products.
- Reduce your costs: By doing this you can maintain the price and be profitable with the same number of unit sales.
- Drop the product completely: This may sound drastic, but sometimes it is the wisest course of action.
- Differentiate your product from that of your competition: You must do this if you establish a meet-the-street competitive price for a product. To accomplish this you emphasize quality, service, product performance, delivery time, financing arrangements, discounting or some other area of importance to your customer.
It is the best way to create cash because its effect is immediate.
You do not have to pay it back (as occurs with equity or debt).
There is little or no incremental cost incurred to increase prices.
It improves “gross profit margin” (gross profit expressed as a percentage of sales), which is a key financial performance indicator for businesses with a cost of good sold category on their P&L statement.
Even if the quantity of sales you make decreases as a result of higher prices, overall revenue and/or net profit could increase (because you make more profit on each sale).
Your customers could perceive your products as having higher quality. If so, your products may become more desirable, resulting in more demand.
You run the risk of losing existing customers and/or not obtaining new customers if they believe your products are not worth the higher price or if your prices are materially out-of-line in comparison to your major competitors.
The most important rule is to test a price change. Begin by changing pricing for a sample you carefully select from your prospects and customers. If you do not detect a detrimental impact on your business, you can expand the test to include more prospects and customers. Be careful to keep your test duration to a minimum time period to ensure you minimize any potential ill-will.
It is usually easy, safe and profitable to increase your price 5% to 10% — unless you are in an industry with extreme competition and price is your customers’ top concern when buying.
It might be feasible to increase price more than 10% if your customers perceive additional value in what you sell.
- Branding is one way to increase the perception of value.
- Another is to offer better or more service to support the product you sell.
You can see 500 creative financing techniques in my book:
It explains proven ways to get cash for a business you own or want to buy.
The “Internal Financing” section has more than 100 business improvement projects that are quick and easy to implement – and each one adds cash to the bottom line.
Business brokers, buyers and sellers say the ideas in the book enabled them to close the purchase/sale of a business or franchise, which would not have occurred if not for this book.
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