Not a Case of IF, When You Raise Prices This Happens…
Increase prices and your profits will soar, and contrary to popular belief, you are highly unlikely to lose clients, so long as you explain why you are doing it. However, instead of increasing prices, most businesses discount…
Have you ever paused to think what a 5 or 10% increase in prices would do to your net profit? Clients ask for a discount, and 10% is a nice round number, (and it’s easy to work out in your head), but what about the impact on your bottom line, well, let’s look at some scenarios:
- Scenario 1: No discount: You sell at your current price which is £100, with a cost of goods of £70, so you make £30 of profit for each unit you sell.
- Scenario 2: Your sales team offer a 10% discount: This reduces your selling price to £90, the cost of goods is still £70, so you make £20 profit for each unit sold.Your profit has reduced not by 10%, but by 1/3rd, down from £30 to £20 per unit sold.
- Scenario 3: You increase prices by 10%: This increases your selling price to £110, the cost of goods is still £70, so you now make £40 profit for each unit sold.
Your profit has increased, not by 10%, but by 1/3rd, up from £30 to £40 per unit sold.
But the impact on your bottom line is even more dramatic as is shown in the example below. If on average you sell 500 units per month, and your total overheads are £140K per annum, then the three scenarios would look something like this:
Your target selling price would result in a healthy 7% net profit, or £40,000. If your sales team discount by 10% you could go from profit to a loss of £20,000, (Ouch).
Whilst a 10% increase in your selling price could deliver a whopping improvement in your bottom line of £100,000, or 15% of sales, (Wow).
The average client probably doesn’t care either way because a 10% difference might not make much difference to them one way or the other, but the impact on your business could be huge. If your clients value your service, increase prices and the pay-back will be likely to be massive.
Obviously with any strategy we’d recommend testing on a small portion of your your client base – or on a selection of your products/services but you may be surprised at the results.
If you’re interested in business growth and strategies, join us for one of our forthcoming Business Mastermind Sessions which can be found here.