Too many businesses are stuck in a self-induced status quo of stagnation. They plateau at a certain level of success and simply assume any additional growth is difficult or costly and therefore not worth the effort.
Nothing could be further from the truth.
The reality is that small changes in your business can result in dramatic increases in your bottom line. This is the case for nearly all businesses. Here’s just one simple change you can make in your business today and increase your net profit by 50% or more.
Business owners often assume people won’t pay more for their product or service. They’re usually wrong.
Unless you deal in a highly commoditized market (if you do, consider a new line of work), your buyers are not strongly motivated by price. Yes, if you double your prices tomorrow, you may lose a chunk of customers (yet you’d be surprised the number of businesses that can do this and not lose a noticeable amount of business).
That’s not what I’m suggesting. At least not initially. An increase of 15% can increase your net income by 50%.
Take a look.
Let’s say your revenue and costs break down like this:
That’s a 30% margin. Not bad. Now what happens if you increase the cost of this product to by 15%:
You just increased your net by 50%.
Think about this for a minute. Your costs haven’t gone up. Neither has your overhead. You just raised your price by a small amount and your profit shot up 50%!
You’re probably thinking, “I can’t raise my price 15%! If I do I’ll lose a bunch of customers!”
Are you sure about that? In this case, you’d have to lose 33% of your customers to be back at that 30% margin.
If the main reason people do business with you is because of the your quality, exceptional service, unique offering, stunning good looks, or anything other than price – you will NOT lose a third of your customers.
Your business should have a Unique Selling Proposition. That is, you should be able to clearly articulate the answer to this question:
“As a potential customer, why should I choose to do business with you versus any other option?”
If you have a convincing answer to that question, you can raise your prices by 15% without any negative consequences (Hint: your answer shouldn’t be that you’re cheaper than everyone else).
Here are just a few ways you can differentiate yourself from the competition:
- Have a better guarantee
- Show greater expertise
- Provide top-notch, personal customer service
Different markets respond to different messages, so do your research. Once you know what the market responds to, customers will be happy to pay a higher price.
One of the best benefits of raising your prices is that it allows you to more easily reinvest in your business. If you’re bringing in 50% more profit, you can – for example – dedicate 20% of that to increasing your client’s experience, 20% to client acquisition, and 10% to your bottom line.
What are the affects of this? You’ve upped the client experience, so now you can further increase your prices. You’ve created a marketing budget that was not there before, allowing you obtain more qualified leads, and you’re taking home a bit more from every client you serve.
This process feeds on itself until you reach a point of equilibrium where you’re able to serve clients with an amazing service at a price point they are happy to pay – while maintaining a marketing budget that allows you to continually bring in new customers.
You don’t necessarily need to increase the price of your core offering.
Rather, consider offering a premium version of your core offering at a higher price point.
In every marketplace, 20% of your customers will purchase a premium option simply because it is available. Don’t pass on giving your prospect options.
Change the question from ‘Should I work with you?’ to ‘How should I work with you?’
What’s The Limit?
You won’t know until you test it out! If you can raise your prices 25% in the above scenario and maintain the same number of transactions, you’ve increased your net by 83%! You’d have to lose over 45% of your customers to be back at that 30% margin.
Remember, this is just one small change that takes no effort. If you position yourself correctly, build out a proper sales funnel, up-sell and cross-sell, and do everything else you need to do to grow your business, you will acquire more new customers. And more customers spending more money with you is a recipe for increasing your bottom line exponentially.