To raise your prices or not to raise your prices?
It’s a tough decision, especially in a weaker economy. Hike prices, some fear, and you may hike yourself out of customers.
But Ted Klimczak of Donovan, Klimczak and Co., an accounting and consulting firm in Akron, says many business owners are cheating themselves by not raising the price on their goods and services. Some may even be putting themselves right out of business. To stay in business over the long haul, he says, overall gross profit margins need to be in the neighborhood of 28 percent to 40 percent.
“Generally speaking, people are price-sensitive today,” he says. “However, there are people who are increasing their prices. It really depends on your relationship with your customers and how they perceive you. If it’s hard for them to replace you, then you’re in a position to raise your price.
“You always, of course, are considering your competition. But you don’t necessarily have to do what your competition is doing.”
How do you make your company irreplaceable? Klimczak suggests the following:
* Know your customers. They’re buying more than just the goods and services you’re selling. Is it convenience? Location? Unfailingly courteous treatment by the staff? A friendly atmosphere? People are willing to shell out more for a value-added product. Klimczak throws out the hefty admission price to Disney World as an example.
“Disney World has a great reputation for being friendly,” he says. “But they’re also not afraid to charge for that service.”
Understanding the motivation of customers “helps set the table for how you’re going to position yourself (in the market).”
* Develop a brand name. Most small businesses think the practice is only for large corporations.
“But in reality, everyone needs to develop their own identity,” Klimczak says. “That affects the perceived value to the customer.”
He gives the example of the local salon that emphasizes its European styling techniques in advertising; the local distributor that ships orders the same day they’re placed; and the Canadian law firm that promises to return calls in five minutes.
* Don’t try to be everything to everybody.
“Narrow your scope and be better at something rather than trying to have broad appeal,” Klimczak advises. “Small businesses have limited resources — they have to be good at what they do. If there’s enough people who want (their product), they’ll be successful.”
* Implement strategies to retain existing customers. Klimczak says it’s usually easier to sell to an existing customer than a new customer, regardless of the price of the goods and services involved.
* Have a positive attitude. To be able to raise your prices, you first must believe you can do it.
“Henry Ford had a saying that went something like this: ‘Either you think you can or think you can’t. In either case, you’re right,'” Klimczak says.
Klimczak adds that older, more established businesses are generally in a better position to raise prices than their newer counterparts, just as a seasoned job candidate can command a higher salary than a recent college graduate.
“There’s a lot to be said for experience,” he says. “Sometimes it takes 10 years, sometimes it takes even longer, to get to the point where you’re in a premium situation.” How to reach: Donovan, Klimczak and Co., (330) 836-9331
Lynne Thompson is a free-lance writer for SBN Magazine.