My post “It’s Time To Raise Your Prices – Even Though Everyone Will Tell You Not To” got a lot of attention; just like when I first raised this issue during an interview.
This is the follow-up to both…
Look, no one knows the price you pay but you.
When you selectively raise the price of your most popular items to add to your bottom line - you'll be able to continue to be in business. When you don't, you end up gone.
Many owners or managers have never taken a course on pricing, so they tend to mark up their products less than they should. I met a guy at a recent speech who sheepishly admitted he purchased an item at $20 and priced it at $25.
Your merchandise should be marked up enough extra to make your business profitable. That used to be double or keystone. With online retailers sometimes selling below the cost you can buy, there is enormous pressure to keep your prices reasonable.
You also have to consider the value you provide to the customer and charge what you think the market could afford, not necessarily what you personally would pay because you know what the item cost you.
There is a hidden risk to increasing your prices, and it doesn't come from consumers... It's from your disgruntled staff. The polite ones who don't say anything to your face but tell customers behind your back, "We just had to raise prices."
They might even inform customers where they can get it for cheaper because they themselves have price sensitivity. Or even worse, "I buy all my stuff from Amazon. It's cheaper.".
Don't you think that could be your staff?
5 Steps to Increase Your Prices
1. Educate your employees on what costs make up your pricing structure. Point out their salaries and benefits. Point out shipping costs. Point out as much as possible to show costs are rising and why you have to raise prices. Reveal there's no magic genie that makes up the difference. (It helps if you don't drive the newest model BMW to work each day—just sayin'...).
2. Do a category report. Look for the category leaders. They are most able to move your profitability.
3. Do an item report. Look for the faster-moving items you can selectively raise your prices on. When I was with the coffee franchise, we increased bagels instead of the entire bakery department. Not because bagel costs alone had risen, but they were the best-sellers and could most help balance increased costs for the business, not the item.
4. Decide how much you want to maintain your profit margins. You could raise items under $10 by a dollar, and no one would probably notice. Once a rate increase crosses over from $9.99 over $10, though, current customers notice, so be careful with that price point. Likewise, the $19.99 crosses into $20, and all the $x9 ($29, $39, etc.) cross into the next level. Psychologically customers "pause" if they really want to spend over $20, $50, or $100.
5. Monitor your sales. If you've done your selective price increases right, everything will continue moving upwards and your profitability will also increase. Remember, you don't want to spend more just because you made more.
Two Choices in Timing Your Price Increases
Aggressively raising prices
If you've ever worked in a larger retailer, increasing prices were almost a daily routine. You would physically remove the tags from the products and re-price them to the new retail. This was done because the retailer understood that when they returned to the vendor, they would have to pay more, so they wanted to proactively price their existing merchandise to help pay for the new. This "float" between what they previously paid and what they would pay in the future helped make them profitable.
Passive price increases
If you've only owned your own shop, you may only change prices when you get a new order in. The thought is it is too much work to change them, and price hikes "wouldn't be fair" as that wasn't the price you purchased the items for previously. But managing your price increases is as important as managing your clearance items - you want to maximize profitability as easily and simply as possible. Being more aggressive with raising your prices - especially now that it is often simply updating a shelf tag and computer database - is being a smart retailer.
You might have one or two existing customers say something if they regularly purchase an item from you, such as ice cream. If so, simply say something to the effect in a sign or in person, "Have you noticed the increase in milk? That has increased our costs and forced us to increase our prices. Thanks for shopping with us."
The minimum wage and tariffs on China have increased, and other factors are pushing the average retail profit margin down. Your products and services support you in living the life you want to lead and staying open for your customers.
To be a smart merchant, you have to know why you must raise your prices and selectively increase them to continue providing your customers with choices.
To get a higher merchandise turn, you have to sell the merchandise. Check out Bob's online retail sales training SalesRX.com below.