Free Stuff: Business Articles - Raising Your Prices: A guide to a tough task

Raise your prices every year, by at least 10%. I will admit, I didn't always do that. Some years I raised my prices 10%, sometimes I went a couple of years without any price increase at all. Why? I guess I made the unconscious decision to make excuses rather than making money.

But what is the big deal of raising your prices 10%? What's 10%? That's only $3 on a $30 item. Big deal, $3. I waste at least $3 on every session by over shooting. Besides my clients would kill me if I raised my prices 10%. Maybe next year.

A 10% increase in prices can mean a 50% increase in profit. For example, if your gross volume is $100,000 and you profit is 20%. That is $20,000 profit. If you raise your prices 10% your gross volume would be $110,000 but the increase goes straight to the bottom line. A profit of $30,000. A 50% increase in profit.

Some might say, "If I raise my prices I will lose business." You might lose some--I can't guarantee you won't, I doubt it, but you might. But, if you raise your prices 10%, you can make the same profit even with a 28.5 % drop in volume (based on 25% profit margin)!

Look at this chart:

  • Based on a 25% net profit margin, 3% increase means the same profit even with a 10% decrease in sales. 5% increase means the same profit even with a 16.5% decrease in sales. 10% increase means the same profit even with a 28.5% decrease in sales. 20% increase means the same profit even with a 44.5% decrease in sales.

So, if you increased your prices 20% you could do almost half the work you do now and make the same profit. Hmm.

What about discounts? To make the same profit with: a 3% discount you need a 13.6% increase in sales; a 5% discount would require a 25% increase in sales; a 10 % discount would require a 67% increase in sales; and a 20% discount would require a 400% increase in sales just to make the same profit! Think about that when you "knock 20% off of something!"'

I began writing a book on pricing and profits when an old friend Joe Butts sent me his book to look at. WOW! This is the best book on pricing I have ever run across. With topics like Keeping Score, Multiplying Lab Costs, Cost of Living, Cost of Doing Business, Price Floor, Price Ceiling, Burden Rate, Effects of Changing Prices, Psychology of Price, 10% of All I Earn Is Mine to Keep, Exchanging Assets, Compound Interest, Found Money, Setting Goals and more, this is the best $19 (plus $3 shipping) you can spend. Why should I invest the time to write a book when Joe has done the work and YOU can profit? Contact Joe at 619-623-3299, joebutts@aol.com, or Joe Butts, 7122 Caminito Zabala St, San Diego CA 92122-5144.