By Rieva Lesonsky
The economy continues to improve. The nation is nearly at full employment. Holiday retail sales came in higher than projected. All good signs, to be sure. So, is it time for you to raise your prices?
The answer might be obvious. Here are some signs you’re likely not charging enough.
If your sales are up, but your profits aren’t it might be a good time to call in your accountant to go over your books. Are there obvious reasons for this?
Next, check your competitors. Are your prices in the same ballpark? Are they charging more than you do for essentially the same merchandise? Don’t make the common mistake of thinking you’ll attract more customers by charging less money. More often, charging less can put you at a competitive disadvantage.
How to tell if your prices are right
Coming up with the right prices is a delicate balance. If you charge too much, you’re going to turn customers off. If you don’t charge enough, you’re not going to make enough money to survive.
To find the right answer, go back to the beginning. Think like a startup and access your spending.
How much does it cost to operate your business today? Make sure you include fixed costs such as rent, financing costs, and variable costs, such as utilities, mailing costs and marketing expenses.
Ask yourself:
- Has your cost of goods increased? Is this due to increased manufacturing costs? Are your regular suppliers charging you more?
- Have you hired new staff? Given your current employees raises?
- Are you spending more on marketing?
- Has your rent gone up?
- Are you paying more for utilities?
- How much more are you paying for shipping?
- Are you constantly discounting your merchandise?
If you answer yes to one of more of these questions, that could be the reason your profits are lagging.
Do you have to redefine your goals? The beginning of a new year is a good time to set sales and profitability goals. How much profit do you want to generate this year? How much revenue will it take to get you there? Will you have to spend more on marketing or hire staff to make it happen?
Cost-up or price-down?
Cost-up pricing starts with the true costs of operating your business and helps you determine a profit margin. Price-down pricing works by looking at market rates and works down from there. What is a consumer willing to pay for your products? Then, work back to cost of manufacturing. If your products cost less to produce, charge less. If your product’s value is greater, then charge more and tell your customer why when they ask why your prices are higher.
Find new suppliers
One easy solution to this may be to find new suppliers and lower the cost of goods. When is the last time you sourced your products? There are thousands of suppliers on Alibaba.com, and it is easy for you to get bids from them and compare their merchandise and the prices they charge.
Do you need help?
Maybe you’re paying too much to get your goods? Check out the services Alibaba.com offers to help you with the logistics of getting your goods from overseas factories to your store or door. Or is its costing your business too much to ship your products to your customers.
Whatever the issue, if you take the time to look at your books and examine your expenses, hopefully this will be the year you boost your sales and profits.
