I truly believe one of the most important aspects to running a successful business is to provide value to your clients. After all, if your clients do not see value in what you are providing, it is going to be very hard to keep existing clients happy and attract new ones.
Play with me here for a minute and imagine … Imagine that you own a reasonably successful childcare centre and you were able to easily buy 30 new iPads and load them full of educational apps for the children to use and develop their computer skills and general education. Then you freely spend $10,000 on the playground creating more protection from the sun and more exciting activities for the children. Finally, you give each child a $100 gift certificate for their birthday. It’s really quite simple to create a scenario like this in your business.
Before I tell you how, let’s take a step back and look practically at the basics of pricing:
Your business costs go up each year. Rent, suppliers expenses and all your overheads increase – often by CPI or more. If you want to maintain the profit from your business, your prices have to increase as well. I have seen very profitable businesses go into a loss position within three years, just as a result of not increasing their prices.
Increasing your prices for what you really feel your time, service and/or products are worth provides income for which there is no additional expense. Any increase in your price goes straight to your bottom line. So even a small increase can be worthwhile, for example if you have a turnover of $1,000,000, a price rise of 3% will add $30,000 directly to your profit. Think about the impact this could have on your business.
Regular small increases in your prices are much easier to implement, than larger infrequent rises. Consider a ladies’ hairdresser who charges $150 for a service (being a laidback guy I don’t fully understand what this service involves, but I am assured by friends such a price is not out of line). A regular 3% price rise would see the price increase to $154.50. An amount which would likely not even raise an eyebrow when you made your next visit. However, if you only raised you price every three years by 9%, which sounds the same, consider the impact on your client. One visit you pay $150, but the next time you pay $163.50. That may be okay, but it may also raise the attention of your client and make them reconsider the value of your service. By delaying the price rise, you may have inadvertently affected how your clients view your business.
Your clients have an expectation that you will increase your price. After all, you expect your suppliers price to go up, so it makes sense that your clients would expect the same.
My experience also shows that you notice your prices much more than your client does, please don’t stress over your decision to implement a price rise.
These are all extremely valid reasons to charge what you believe you’re worth, but wouldn’t it be even better to be able to use a price rise to benefit your clients and team? Communicating your price rise to your client and team gives you another chance to connect and share with them.
Now let’s go back to my childcare centre example. You currently charge $70 a day per child. If I told you that you could increase your price to $80 a day (a rise of over 14%) you might think I was crazy. However, let’s take a look at the numbers more closely.
Your child care centre looks after 30 students a day, operates five days a week, 48 weeks a year. A price rise of $10 a child a day will give you an annual revenue increase of $72,000 ($10 x 30 x 5 x 48). This additional income gives you the freedom to provide those additional services and products I talked about earlier: 30 iPads with educational apps, $10,000 of new sun protection and activities, plus $100 gift voucher for each child.
The result is that you have spent $43,000 and still have $29,000 to add to your profit or reward your hardworking integral team. Plus, consider the value proposition you can now offer your existing and prospective clients:
- Every child receives their own educational iPad to help their development in computer and general educational skills
- Extra protection and stimulation through the upgraded sun safe playground with the latest activities, and
- Every child is celebrated with a $100 gift voucher for their birthday
Now considering those benefits, does the $80 a day sound like it provides more value to you than the previous price of $70 with none of the extras?
The point of this example is to get you thinking what you could do in your business that creates more value for your clients. Once you have created and shared this additional value the price becomes almost irrelevant.
Craig is a business adviser and accountant with Rethink, who does things a little differently. Craig specialises in an extensive range of services in particular growing businesses, building/increasing profit, compliance, supporting people with the financial management of their businesses, attending to their personal wealth and working with clients to shape their future.
With his exceptional communication skills, high standards of customer service and a true understanding of what people want, Craig ensures your needs are met…every time.
Craig loves teaching business owners how to improve, maintain, plan and monitor their profits. He can assist you in gaining a deeper and clearer understanding of your financial position.