While growing profits may be the top goal of small to medium-sized businesses, achieving growth is hard to do with profit margins under constant pressure from direct competitors, substitute products, tight-fisted customers, economic cycles and inflation. One strategy to boost profits is to add to the value you provide and adjust prices to meet sales goals, maintain market position and keep profits flowing.
As a business owner, you need to be very purposeful about pricing, resisting the temptation for unnecessary price reductions while maintaining or even raising prices to match the value you deliver. That requires pricing discipline — overall and deal by deal — while always searching for new ways to add value to your offering. Meeting changing marketing conditions, costs and competitive offerings with new ways to capture value can help protect your profits while opening new avenues for revenue.
The following five approaches take advantage of extra employees, brainpower and inventory on hand to help you maintain pricing integrity, while keeping costs in check.
Adding value, matching prices, boosting margins
Responding, executing and delivering faster can be hard work, but it can also command much higher prices - how much more will vary by business and situation. Price elasticity – the amount that demand changes with price movements – may be low for a tree removal service ready to work in a neighborhood hit by big storm but high for that same service for customers with no time pressure. A tree company being able to summon the crew and equipment and respond quickly can command a “speed premium.” Many types of businesses, including service, product and distribution businesses, have opportunities to adjust prices to be paid for speed and responsiveness. Talk to customers about ways to improve their supply chain not only with faster delivery, but also with smarter, more informed tracking of when and where deliveries will arrive.
You can maintain or raise prices by adding delivery, installation, customization or other customer services to your offerings. Talk to customers about how they use your products and services. Map their journey from realizing they need your product through purchase and into using it. Are there other products or services that are needed to derive value from the purchase? Do customers need your product installed? Are there opportunities for convenience add-ons? For example, a company provides equipment and installs security systems. configuring the phone or tablet apps may offer you another convenience product that a busy customer would gladly pay for. Value-added services for your offering can secure the relationship while offering additional margin.
Teaching clients how to use your products adds value by helping customers appreciate all the features, benefits and uses of your products. Then, you can raise prices or charge a fee for the classes or one-on-one training. Speak to your customers and coordinate information-sharing on how to use your product most efficiently. Companies from Apple to Home Depot offer regular classes in their stores on how to use their premium-priced products to get them off the shelves, into customer’s hands and generating value and satisfaction for those customers. If you sell a complex product such as computers or software, offering technical training is a great way to increase revenue and add value. You can provide training before and with the sale, as well as on an ongoing basis.
Add-ons and Bundles
Finding add-on sales and bundling products is, in fact, the most efficient way to sell. If clients already buy one product from you, they’re going to be more receptive to buying another. Plus, you already have a relationship with the customer that may leave them more inclined to accept your email, text or call. Bundling can use the energy that it takes for one sales and use it for multiple sales. Look no further than the Amazon ordering screen for a proven best practice. Amazon usually suggests other products that are often bought at the same time as the product searched for. A marine battery may suggest a protective case along with a battery charger to maintain the battery. Just suggesting complementary bundles may boost sales. Going further and giving up some of your margin via a lower bundle price in exchange for the customer buying more at once from you may generate even more demand and sales. Explore your inventory, suppliers and business partners to find ways to combine complementary product pairings into bundles that fit your business.
How you package your products and deliveries is often an area that business owners overlook when innovating. Think through how your customer receives, stores, uses and recycles your product. Are there opportunities to eliminate steps or innovate the packaging to improve loading, storage, restocking or clean up? Understanding the way your customer – whether an end user or another link in the supply chain – uses the product can allow you to reduce customer production cost in either direct steps eliminated or reduced unpacking time and packaging to be disposed of. You can capture some of that value in your pricing. Further, more “green” offerings, with less packaging, more recyclable components or using sustainable types of packaging, can create value in your customer’s eyes – value that you can potentially recapture via pricing or higher demand.