Increased costs weigh heavily on the bottom line. If you’re being pressured by costs, it’s probably time to review your pricing strategy.
You’re not alone. No business is immune from rising costs in fuel; rent or real estate; labor; health insurance and ObamaCare; marketing; and equipment.
Lest not you forget all the taxes. Yes, it’s tough managing your business finances.
Capital expenses, such as equipment, are a bit easier to control if you shop around and stay flexible on whether to buy new or used.
To save on fixed expenses, it would be time-consuming to relocate even if you can identify a cheaper alternative.
Your variable expenses vary depending on your business activity, and your consumption of products and services.
Where to go slow
Where I advise you to go slow is deciding whether to cut employees and marketing. They’re usually critical assets.
So, if you’ve cut all you can and profits need to be stronger, consider your pricing structure to stay ahead of your rising expenses. Besides it results in better PR and customer loyalty if you stay current and avoid steep increases all at once.
You can recover your expenses with a flexible pricing strategy. Review it often and be ready to adjust it. Besides, you can take price increases more easily if your pricing strategy is creative – such as bundling your products.
Manage the sweet spot
How can you manage the sweet spot – between your price-optimization and costs? The No. 1 pricing mistake made by companies: They base their prices on their costs, not their customers’ perceptions of value.
For stronger profits avoid this mistake and 10 other typical pricing mistakes.
You must also communicate increases with your customers. For example, headlines were made in June 2013 when Starbucks announced it was forced to raise prices even though its coffee bean costs had decreased. Starbucks was responding to its other cost increases.
Consider four strategies:
1. Again, be aware of your costs but relate them to higher value
This is where maintaining your marketing helps tremendously. A favorable image of your company makes it possible to raise prices. So avoid strictly using a cost-plus margin because you’ll have less flexibility when you need to raise prices. Meantime, focus on energizing your customer-loyalty program.
2. Monitor your situation to raise prices as soon as necessary
Watch your key indicators that affect your margins whether they are fuel, health insurance or your suppliers. When your costs increase, inform your customers and reinforce your marketing so your customers are accepting. If you’re on a tight budget, use the 10 best marketing tips for growth.
3. Continue to maintain your marketing
Your customers will respond favorably, if you enhance your branding. Quality branding improves the value perceptions of your customers. But stay away – far away from those daily deal coupon sites. You will not make any profits.
For better strategies, see countless marketing and sales tips here.
4. Be astute in your market segments
Customers of some products will accept higher prices, if their perceptions of your value are positive. Customers of other products won’t accept higher prices. Learn which strategies will work for you. Meantime, avoid the 11 typical pricing mistakes that are mentioned in this case study.
From the Coach’s Corner, for more comprehensive strategies, see:
8 Strategies When Sales Drop and Costs Cut into Your Profits — If your sales are down and costs are hurting your profits, you’re certainly not alone. This is still not a good economy for many sectors. The irony is you can do something about it
4 Strategies if You Fear Missing Year-End Forecasts — Are you sweating over cash flow? Are you losing sleep over the prospect of missing your annual goals? Well, if so, certainly you’re not alone. Many business owners and executives have suffered from the same anxiety. But fear can be a great motivator for success.
Need PR, But No Budget? Here’s How to Leverage News Media — Social media is OK for promotion. But if you need blockbuster publicity, use best practices in marketing. Play a trump card — leverage the news media for public relations.
“Pricing is actually a pretty simple and straight forward thing. Customers will not pay literally a penny more than the true value of the product.”