Updated: Sep 13
Welcome to Ask an Expert Business Series with Misty Lambrecht, the owner of Webfoot Marketing and Design, sharing valuable insights based on her extensive 15 years of experience in business startups and advising in Lincoln County. I always advise my startup clients not to start with too low a price and plan to raise it later. Raising prices can be much harder than offering a sale. It comes with several psychological concerns, as we fear that
clients will leave and opt for cheaper alternatives.
While it's true that some might leave, let's analyze prices more from a numerical
standpoint. For instance, imagine I own a candy bar business. I purchase my candy bars for 50 cents and set the price at $1, solely based on the dollar store down the street. After carefully reviewing my expenses, I find that I need $4,000 per month to cover all costs, leaving me with 50 cents in profit from each sale to cover my expenses. This means I must sell 8,000 candy bars every month to meet my expenses.
However, if I decide to raise my price by 10%, making my cost $1.10, With this increase in price, I still manage to pay my $4,000 bill because I now have 60 cents from every sale to allocate toward expenses. I can reduce the number of candy bars I need to sell to pay my bills to
6,666. Even if 1,334 people decide it's too expensive and look for a cheaper alternative, I can still cover my bills and provide for my family.
Keeping your price the same for extended periods might lead to a smaller bottom line. Consider that expenses such as shipping, supplies, gas, food, utilities, and employee wages have likely increased over the last year or even the last six months. Now, let's examine the same example without increasing the price but with an increase in expenses. If my cost remains at 50 cents, but my expenses rise by 10% to $4,400, I now need to sell 8,800 candy bars each month to cover my bills. I have to sell an extra 800 products to compensate for the increased expenses. This becomes much more challenging when you consider the cost of acquiring 800 more customers.
While it's likely that a few customers will be lost when the price is raised, it's essential to overcome this loss by focusing on the advantages of buying from you instead of the alternative. Work on reducing costs by exploring different suppliers, purchasing in larger
quantities to secure bulk deals, evaluating overhead expenses, and meticulously analyzing all costs to find potential leaks. Make your candy bars more accessible and consider asking for cash to reduce credit card fees. Sometimes, small adjustments can make a big difference.
The key is not to underprice yourself. My famous line when working with contractors and evaluating prices, "How much are you willing to pay for them to have a nice deck".