We come across a lot of businesses who are shy about putting their prices up.
Sometimes they just hadn’t thought to.
Sometimes time is going so fast they didn’t realise how long it had been since they looked at pricing.
Sometimes they can’t be bothered, it feels like too much of a faff.
But mostly, they’re too scared to.
Scared their customers won’t like it. Scared they’ll lose customers.
Scared they might not be keeping in line with the market.
Inflation price rises
I’m not talking here about just putting up prices for the fun of it.
I’m just talking about keeping up with inflation.
Pretty much everything you buy goes up every year; annual living wage increases well above inflation each year, electricity, gas, insurance, fuel, food, advertising. Everything.
Unless of course your suppliers are the daft ones who don’t put their prices up.
So if you don’t put your prices up, your bottom line profit will get eroded more and more each year, until you’re running on fumes. Cutting costs to make a profit, strangling the business in the process.
Not the way to go.
What difference does an inflation rise make?
You could be forgiven for doubting how much difference this would make. Inflation has been next to nothing for ages right?
So I put some numbers together for this blog, just to show the effect. I’ve worked these on different annual turnover figures with the annual CPI inflation, and an average of 2.5% (which is where wage increases tend to sit)
I suspect you’ll find these figures surprising. It’s because of the cumulative effect.
Your price rise action plan
- Check to see when you last increased your prices
- If it wasn’t for at least a year, you need to put them up
- And put a recurring entry in your diary to do this every year.
What are you resisting?
Ok, for those who are panicking, thinking “but I can’t put my prices up, you don’t understand” let’s just look at the reasons not to.
If you’re having a reaction against putting prices up, just dig into why that is.
It’s usually an irrational fear of risking upsetting the applecart with your customers or clients. It’s easier to stay under the radar, of course it is. We worry that by saying “Hi there, I’m putting your prices up” they’re going to take the opportunity to look around at your competitors. Of maybe you fear they could do without you.
Sometimes it’s because you know you’re not quite delivering the service you want to and this will trigger your customer to say something, or leave you. In which case, sort your shit out! Keeping prices low because you don’t rate yourself is only going to go one way. Badly!
You may feel you have keep in line with the market and daren’t go above. And I get that some businesses operate in an incredibly price conscious environment. But someone has to be the first to increase prices for inflation, otherwise it’s a race to the bottom. And that’s never been proven to be a great profit strategy.
Sometimes I hear agency owners saying they need to keep their day rate competitive but don’t actually know what their competitors charge!
Time to be brave
I hope you can see that not increasing prices for inflation isn’t a great idea.
It’s not usually a conscious decision not to, but fear and procrastination get in the way. If you’re feeling like that please do be assured that we come across many business owners who feel that way. It’s not just you!
Your customers won’t put the flags out when you tell them, but they will expect it. Everyone else does it.
Putting your dividends up
And on the same subject, when did you last put your dividends up?
Too many businesses keep taking the same dividends out year after year, whilst their staff get annual pay rises.
Talking to one of my clients recently and she realised she hadn’t put her pay up for quite some time. We worked out how much she’d not earned just through inflation during that time – she was staggered to find it was over £98k! Remember, the effect is cumulative.
Check yours and make sure you’re getting a rise too!