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We all want to succeed in business, especially when inflation and the cost of living are high. It might seem like a good idea to keep your prices low to attract more clients, but this can often lead to your costs outweighing your revenue. As a director, manager, shareholder, or stakeholder, you might need some guidance on how to adjust your prices effectively.

Manage Your Finances Wisely

Here are three real-life examples that illustrate the journey from starting with problematic pricing strategies to finding solutions that benefit the business. You might find one that resonates with your situation.

 – Lesson 1: John’s Price Drop Dilemma

John was facing tough times and decided to lower his installation fees below his competitors. Enquiries picked up quickly, and his business was bustling with clients. However, his accountant soon called with some bad news. While the number of clients was impressive, the business had actually lost money over the last quarter.

John learned the hard way that high client volume doesn’t always mean high profits. It’s crucial to ensure your fees cover all your costs and provide a healthy profit. John hadn’t reviewed his costs recently, which led to the unpleasant surprise.

– Lesson 2: Sue’s Undervaluation Mistake

Sue’s PR and media consultancy was struggling to attract clients. She set her rates 20% below the industry average, thinking her lower overheads justified the lower prices. However, clients were not interested.

Her mentor advised her to raise her rates to reflect her qualifications and experience. Lower prices can sometimes be perceived as lower value and quality. In industries like hers, confidence and perceived value are important. Sue took the advice, adjusted her pricing, and soon saw her business pick up.

– Lesson 3: Alan’s Niche Market Success

Alan’s IT support business was doing okay with regular maintenance work, but major projects and system upgrades were few and far between. He tried to match the fees of larger IT firms, leaving him with very slim profit margins.

After some brainstorming, Alan decided to focus on small business owners. He repositioned his services as a comprehensive IT solution for small businesses, offering packages that included system setup, data transfer, and ongoing support. While the profit on basic services remained small, the added value services significantly boosted his overall profit.

Key Takeaways

These stories show that getting your pricing right is vital for business success. You need to understand all your costs to set appropriate prices and be aware of what your competitors charge without blindly following them, as their cost structures might differ.

Remember, there’s often more profit at the higher end of the market. If price is an issue, think of innovative ways to add value through unique selling points.

Finally, discounting rarely benefits smaller businesses. Cutting your profit for sales volume can lead to a price war, which bigger companies can win. Instead, focus on offering value that justifies your prices.

Take the Next Step

If you’re ready to explore how to improve your pricing strategy and enhance your business’s profitability, contact Julia to arrange a no-obligation 15-minute pre-Health Check meeting. Email Julia at Julia@leaskas.co.uk.