Increase prices and your profits will soar, but how do you avoid the risk of losing or upsetting clients?
It’s relatively straight forward really, find out if clients are delighted with the service you provide and if they score you 5 out of 5 for ‘Value for Money’, put the price up. Just one of the unexpected benefits from conducting a Client Engagement Audit.
Have you ever paused to think about the impact what a 5 or 10% increase in prices would do to your net profit? Clients ask for a discount, and 10% is a nice round number, (and it is easy to work out in your head), but what about the impact on your bottom line, well, let’s look at some scenarios:
Scenario 1: No discount:
You sell at your current price which is £100, with a cost of goods of £70, so you make £30 of profit for each unit you sell.
Scenario 2: Your sales team offer a 10% discount:
This reduces your selling price to £90, the cost of goods is still £70, so you make £20 of profit for each unit sold.
Your profit has reduced not by 10%, but by 1/3rd, down from £30 to £20 per unit sold.
Scenario 3: Client feedback indicates you can increase prices, and up they go by the same 10%:
This increases your selling price to £110, the cost of goods is still £70, so you now make £40 profit for each unit sold.
Your profit has increased, but not by 10%, but by 1/3rd, up from £30 to £40 per unit sold.
But the impact on your bottom line is even more dramatic as is shown in the table below. If on average you sell 500 units per month, and your total overheads are £140K per annum, then the three scenarios could look something like this:
Your target selling price would result in a healthy 7% net profit, or £40,000. If your sales team discount by 10% you could go from profit to a loss of £20,000, (Owch!), but a 10% increase in your selling price could deliver a huge increase, doubling your net profit to £100,000, or 15% of sales, (Wow).
The client probably does not care, after all, a 10% discount does not make much difference to them one way or the other, but the impact on your business could be huge. If your client feedback indicates you can increase prices, the pay-back is likely to be enormous.
Makes you think, doesn’t it? If you are currently wondering if you can increase prices and by how much, maybe it is time to commission Enquir3 to interview a sample of your clients as the logical first step towards safely increasing your prices.
Give Steve Darnell a call on 020 7100 5180