12 min
What Every Trade Business Owner Should Know About Raising Prices Contractor Success Map with Randal DeHart | Contractor Bookkeeping And Accounting Services
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- Marketing
This Podcast Is Episode Number 515, And It's About What Every Trade Business Owner Should Know About Raising Prices Raising prices can be a sore subject. Many construction business owners like you assume doing so will spell the end of your competitiveness. But by not raising prices, you're simply letting inflation and your suppliers' maintenance of your margins quietly eat away at profitability. The bottom line is that costs will always rise long-term - at least with inflation.
That means you have to pass on the costs to your customers or consume those costs yourself to the point where one day, you'll have to either suddenly raise prices or accept the eventual failure of your business.
The worst thing you can do is avoid measuring your costs by sticking your head in the sand. Cost rises will catch up with you eventually, so take action to maintain your margins.
Analyze and reduce your costs Regularly check the accuracy of the prices you use in your forecasts and break-even calculations. If you're using outdated costs, your predictions could be dangerously off course from the actual performance of your business.
Ideally, you should have your figures analyzed by a professional accountant with experience in the construction industry - and even then, you should remain directly involved to maintain an understanding of your books.
But if that's impossible and you have to make your own costs and margin analysis, try using the following tips to help you resolve any profit issues.
Analyze costs and profits on an individual product and service level first before looking at the business as a whole. You may miss critical financial details if you try and cut straight to the chase. Try making minor, subtle adjustments throughout your range rather than hiking prices on one service, even if the margin on that particular item is the one causing the biggest headache. Sharp, sudden price rises are more likely to attract a long-term adverse reaction from the target market than almost imperceptible ones they can easily accept. If you find a loss-making product in your books, don't immediately delete it. Consider first whether it's required to aid sales of profitable services. Schedule small price increases every six months or years rather than waiting every few years to raise prices more noticeably. Increase your prices If your costs are optimal, look at the other end of your margin - the price.
You may be hesitant to raise prices because you think any price advantage you have over the competition is too significant to lose, but if you give customers more compelling reasons to hire you, you may be able to justify a higher price.
Remember, it's all about positioning. Premium pricing reinforces the value of a premium service. If your market research tells you there's a gap in the market for a value alternative, fill it. But if there's also a gap for a superior choice, take that option if you can deliver a product or service to the required standards.
Why? Put simply; there's always someone willing to go cheaper. Look at how large shopping outlets use their buying power to find ultra-cheap stock and take customers away from smaller businesses with tighter margins.
Many small business owners take it as gospel that the last thing they should do is raise prices, but the opposite is true more often than not.
Just make sure that if you do raise your prices, you do so:
At a fair pace and intervals instead of raising prices in a way that will shock the market With consideration of the market's price tolerance Alter your product or service mix Any two margins are rarely the same in a range of products, so why focus equally on selling them all if concentrating on the higher-margin products will increase your income?
If costs and pricing are optimal, altering your product mix is the only way to maintain or increase your margins.
This means being ruthless and chopping products or services that may be close to your heart to focus instead
This Podcast Is Episode Number 515, And It's About What Every Trade Business Owner Should Know About Raising Prices Raising prices can be a sore subject. Many construction business owners like you assume doing so will spell the end of your competitiveness. But by not raising prices, you're simply letting inflation and your suppliers' maintenance of your margins quietly eat away at profitability. The bottom line is that costs will always rise long-term - at least with inflation.
That means you have to pass on the costs to your customers or consume those costs yourself to the point where one day, you'll have to either suddenly raise prices or accept the eventual failure of your business.
The worst thing you can do is avoid measuring your costs by sticking your head in the sand. Cost rises will catch up with you eventually, so take action to maintain your margins.
Analyze and reduce your costs Regularly check the accuracy of the prices you use in your forecasts and break-even calculations. If you're using outdated costs, your predictions could be dangerously off course from the actual performance of your business.
Ideally, you should have your figures analyzed by a professional accountant with experience in the construction industry - and even then, you should remain directly involved to maintain an understanding of your books.
But if that's impossible and you have to make your own costs and margin analysis, try using the following tips to help you resolve any profit issues.
Analyze costs and profits on an individual product and service level first before looking at the business as a whole. You may miss critical financial details if you try and cut straight to the chase. Try making minor, subtle adjustments throughout your range rather than hiking prices on one service, even if the margin on that particular item is the one causing the biggest headache. Sharp, sudden price rises are more likely to attract a long-term adverse reaction from the target market than almost imperceptible ones they can easily accept. If you find a loss-making product in your books, don't immediately delete it. Consider first whether it's required to aid sales of profitable services. Schedule small price increases every six months or years rather than waiting every few years to raise prices more noticeably. Increase your prices If your costs are optimal, look at the other end of your margin - the price.
You may be hesitant to raise prices because you think any price advantage you have over the competition is too significant to lose, but if you give customers more compelling reasons to hire you, you may be able to justify a higher price.
Remember, it's all about positioning. Premium pricing reinforces the value of a premium service. If your market research tells you there's a gap in the market for a value alternative, fill it. But if there's also a gap for a superior choice, take that option if you can deliver a product or service to the required standards.
Why? Put simply; there's always someone willing to go cheaper. Look at how large shopping outlets use their buying power to find ultra-cheap stock and take customers away from smaller businesses with tighter margins.
Many small business owners take it as gospel that the last thing they should do is raise prices, but the opposite is true more often than not.
Just make sure that if you do raise your prices, you do so:
At a fair pace and intervals instead of raising prices in a way that will shock the market With consideration of the market's price tolerance Alter your product or service mix Any two margins are rarely the same in a range of products, so why focus equally on selling them all if concentrating on the higher-margin products will increase your income?
If costs and pricing are optimal, altering your product mix is the only way to maintain or increase your margins.
This means being ruthless and chopping products or services that may be close to your heart to focus instead
12 min