Winning the business while maintaining profitability is a fine art in pricing your goods or services. Knowing if your pricing is competitive isn’t always easy. This is an area of financial management that often isn’t reviewed enough to support good cash flow and competitive bidding. Here are some signs of low pricing and how to adjust without losing clients.
Comments about Your Pricing
If you continually hear things like “really, that’s it?” or “I thought it would be more,” from your customers, you may be pricing your goods or services too low. Many customers have a price in mind and they may have even talked to a few other companies by the time they contact you. If you hear these comments, consider increasing your pricing.
Making up for Profit Loss in Other Areas
If you are consistently trying to make up for lower profit margins by capitalizing on goods or services in other areas that have higher margins, this is a sign that you may have a pricing issue. Review goods and services on an individual basis to determine the profitability of each one individually and adjust pricing accordingly.
Financial Statements Reflect Low Profit Margins
You’re in business to make a profit, but if your financial statements don’t show a reasonable or higher than average profit margin for the industry, then fees may be a culprit. If you are properly managing your own costs that go into producing your goods or services, including payroll and other overhead costs, then low profit margins are an indication that your fees are probably too low.
Knowing you are pricing goods or services too low is the first step. Now you need to adjust your prices so you are more competitive, but you don’t want to lose your best clients in the process. Implementing a price adjustment strategy will help you increase the cost of your goods or services in a realistic time frame while communicating your value to your customer.
Consider your Pricing Strategy
Are your goods or services bundled? Offering one pricing strategy can make a customer feel like the decision to purchase is a simple yes or no. Offering options provides them with a feeling of control over their decision.
Making Price Adjustments
You must continually monitor your pricing and margins to ensure they are where they should be. Depending on the range discovered during analysis, you can make pricing adjustments all at once or you can consider incremental adjustments so you don’t shock your customers. The adjustments should remain affordable for your customers, otherwise they will be motivated to find a lower-priced competitor.
With any adjustments in pricing, ensure that you are communicating the value of your goods or services to the client. If what you offer is better than what a competitor offers, call out the benefits of your product or service. Addressing this in a way that communicates how this benefit solves the problems of your customers makes it relatable to them and encourages them to pay for that value and proven relationship..
When it comes to maintaining competitive positioning for the cost of your goods or services, review what you are hearing from your customers and what your financial statements are telling you. Find out how you compare to others in your industry to see if you are meeting or exceeding industry benchmarks. Our Solutions Services group was formed to help companies with everything from bookkeeping services to providing outsourced CFO services. Contact Brandon Smith at 256-533-1040 to schedule a free consultation about how low pricing or other factors impact your profit margins.