Why Raising Your Prices Won't Kill Your Business

Posted by David Chism | Mon, Jul 23, 2012

 Why Raising Your Prices Won't Kill Your Business
Your prices are too high!” Ever heard that before? I think con­sumers are born with this phrase engraved into their brains. No mat­ter what busi­ness you are in, peo­ple will always tell you that your prices are high. I’ve almost nev­er heard, Wow! Your prices are very cheap.” Have you? If you have, raise them now, and then keep read­ing this post. I was recent­ly talk­ing to a friend of mine who runs a great paint­ing busi­ness in the Chica­go area. He was hav­ing a friend­ly con­ver­sa­tion with one of his com­peti­tors who told him what he was bid­ding his paint jobs at: $32 an hour. My friend asked what he was pay­ing his painters. The top painter was get­ting $25 an hour and the low­est paid guy $17. After a minute my friend said, You aren’t mak­ing any mon­ey are you?” The com­peti­tor said that on the high­est paid employ­ee, he does­n’t make a pen­ny, and he earns around $7 an hour on the low­est paid per­son. That means he is run­ning a busi­ness mak­ing lit­tle or no prof­it. Does he real­ly want all the stress of run­ning a busi­ness (i.e. over­head, trucks, gas, pay­roll, work­er’s comp, OSHA, sched­ul­ing and a hun­dred oth­er man­age­ment tasks) when he is not mak­ing mon­ey? But he had been told by poten­tial cus­tomers that his prices are high and that his main com­peti­tors are charg­ing even less! So what is a small busi­ness own­er to do? Raise the price! Anoth­er Les­son from my Dad Most of what I’ve learned in the busi­ness world is from grow­ing up in a small-busi­ness fam­i­ly. My dad is my role mod­el. He’s always done an incred­i­ble job run­ning his paint­ing com­pa­ny. He’s oper­at­ed with no busi­ness debt and made many deci­sions that ben­e­fit his com­pa­ny and his cus­tomers. One les­son I’ve learned from him is that rais­ing your price won’t kill your busi­ness. My dad told me that at one point in his busi­ness, he real­ized he was not mak­ing much mon­ey. He ran the num­bers and saw that he was clos­ing about 35% of his leads. He had been told his prices were high, which pro­vid­ed a lot of head trash for him to sort through. After work­ing with some busi­ness coach­es and his accoun­tant, he decid­ed to raise his price, not low­er it. How much did he raise the sell­ing price? $10 an hour. In the paint­ing indus­try, it is a huge leap of faith to bump your price up so much. He kept on esti­mat­ing and sell­ing jobs and then ran the num­bers again. His clos­ing ratio was still at 35%*. It did not drop, but now he was final­ly mak­ing some mon­ey. He real­ized that peo­ple will always tell you your price is too high, and he decid­ed he would not let that both­er him. He knew he was pro­vid­ing excep­tion­al val­ue and set him­self up as the Nord­strom of painters.” He began to make fur­ther changes in his busi­ness to make sure that his cus­tomers felt his prices would get them the val­ue they were expect­ing. Stay Com­petitve Rais­ing your prices is nec­es­sary for many of you read­ing this post. There may be a few of you who have a dif­fer­ent busi­ness mod­el. Maybe you are going after a type of audi­ence that is mid­dle or low­er-mid­dle class and you have to do a lot of vol­ume. If that is the case, some­times the low­er price niche works. I do have a client who runs a pro­fes­sion­al and inex­pen­sive paint­ing busi­ness. He has to sell A LOT of paint jobs to make it. For most of you who are going after the high­er-end mar­ket and offer­ing excep­tion­al ser­vices, set your­self up as the leader in your indus­try. Look at your busi­ness as a whole and make sure you not only raise your prices but exceed your cus­tomer’s expec­ta­tions. Make them know, with­out a doubt, that they picked the best. *Side note about my dad’s clos­ing ratio of 35%. Clos­ing ratios take into account what jobs you pre­qual­i­fy. In oth­er words, some com­pa­nies will pre­qual­i­fy a prospect and deem that per­son as not a good fit and will not pur­sue an appoint­ment. My dad, back in the ear­li­er days did not do a lot of pre­qual­i­fy­ing his prospects, which is why his clos­ing ratio was 35%. It would have been much high­er if he cut out some of the shop­pers. If you do pre­qual­i­fy your prospects, and are good at sales, a good bench­mark should be close to 50%+. 

About David Chism

David Chism started his business out of a passion for helping small contracting businesses grow, be more profitable and become better known to their target clients. One lifelong hobby of David is using techie gadgets. So this blog is a place where he writes about technology, marketing ideas, just for fun (humor), personal thoughts on small business and more.


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