• Jim Payne

The Fastest Way to Higher Profits

What is the fastest way for a business to get their profit lines up? The answer is, wait for it, à improve your pricing policies. One study several years back concluded that the average small business spent less than 8 hours a year formulating their prices. In fact, most business never formulate their prices at all. Rather they look at the “market price” to decide what their price should be. Let’s think about the logic here. How smart is it to let your competitors set your prices?


What if it was possible to raise your prices and have that change go straight to the bottom line? It is absolutely possible. I suspect that most business could raise their prices by 2 or 3 percent without losing any noticeable number of customers. It’s just too small a number for customers to justify spending time to find a replacement. So, do this exercise – multiply total sales by 3% divide that number by the average customers annual billing. The result is the number of customers you could lose and still be at the same profit level. That is making the same money but working less.


Now let’s think about some bigger money. What if you could move that price up by 5 to 7 percent? That’s a pretty big jump. If your sales were 1 million, a 7% bump amounts to $70,000. That’s not chump change for most of us. But how do you do it without losing a lot of customers?


Big changes, big rewards, requires work. There are lots of ways to approach the problem and here are a couple of steps that will work for a lot of you:

  1. Figure out how to differentiate your product from your competitors. I know, you’re in an industry in which the products are a commodity. The good news is that the theory that any product is a commodity is probably wrong. You can find differences.

  2. Figure out what your value proposition is. What is it about your products that your current customers find particularly appealing?

  3. Start doing a better job of communicating those values in all your literature, blog posts, etc.

  4. Offer your customers the option of picking a package of services/products from a menu with three options. Packages are very hard to compare. Just think about what a pain it the last time was when you tried to compare liability insurance policies from different insurance companies.

Is better pricing the fastest way to higher profits? It’s not likely that any small business is wasting so much money that cost cutting can get them that 5% jump in profits. Better pricing is a gift that will keep on giving year after year, while cost cutting has a limit that will only get you so far.

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