Give yourself a raise

Reduced budgets, four day work weeks, and layoffs are the realities that have many people concerned about their jobs and their paycheck. If you’re a business owner, you have probably had to cut some costs to stay competitive. There’s nothing wrong with cutting waste and efficiency, but in the history of the world, no business has ever made a fortune by simply cutting costs.

Many companies are marking down their prices in an attempt to increase their sales, and for some this strategy is working, while for others it is only hastening their demise because it is cutting into their contribution margin and making it even more difficult to pay expenses. Many are even operating at a loss, with the hope that the economy will turn around soon, or something will happen before they are forced to close their doors. Good luck.

Larger companies that buy in bulk or can demand lower prices from vendors have an advantage when it comes to pricing. Wal-Mart can sell for less because they buy for less. If customers view your business or product as a commodity, then a change in price will cause a change in the quantity demanded. Lowering the selling price usually results in an increase in the customer’s demand, and vice versa. Therefore, your ability to raise prices without lowering the demand is dependent upon your ability to create a real or perceived advantage in the minds of your customers.

Let’s look at a strategy that very few businesses take during difficult times. Instead of lowering prices, try giving yourself a raise. Depending on your profit margin, a price increase can make a huge impact on your bottom line. Let’s say you sell a product for $50. Now, for each customer ask yourself: “If I raised my price by 2 percent, would I really lose the customer?” If the answer is no, then try 5 percent, 8 percent, and 10 percent.

What you’ll find is that some customers cannot take a price increase, while others can take 2, 5, 8, or 10 percent. A 10-percent increase would put $5 in your pocket, and if you sold 1,000 units per month, it would give you $5,000 extra dollars you could take to the bank (after paying taxes, of course). Even a 2-percent increase would give you an extra dollar, which would amount to an extra $1,000 per month. If your margins were low and you were clearing about $5,000 on that one product, you just gave yourself a 20-percent increase on profits.

Now before you discount this as heretical doctrine, consider that businesses that have implemented this strategy properly have noticed a slight decline in sales, no lost money, and profits went up. What is really bizarre is that some businesses will actually see their sales volume increase because some customers equate higher price with better quality. That’s why some perfume, clothing, watches, and other products positioned as non-commodity items can get away with outrageous price tags.
[B] WARNING & DISCLAIMER:[/B] Most of the businesses on Saipan cannot use this strategy because they have positioned their business and products as a commodity, played pricing catch with their competitors, and therefore trained their customers to be very price sensitive.

Now, to pull off this bit of pricing prestidigitation in the midst of the most serious recession the world has seen in generations, you would need to raise the perceived value of that $50 product. That way, your most price-conscious customers feel like they are getting a better deal by paying you more than your low-priced competitor.

This is where you need to analyze the value your product offers to your customers. Your total offer is every element of value that your customers feel they get when they purchase your product. These elements can include such things as the product or service itself, associated services or products, your customer support, convenience, location, selection, guarantee, warranty, policies, terms, reliability, availability, and reputation.

Most businesses emphasize only a few of these elements, but the more you have, the greater the perceived value your product or service will have in your customer’s mind. Or you may have a killer value proposition that your regular customers know exists, but prospects are not aware of it. A quick example is a used car dealer I worked with in the U.S. The owner and son had been in business for over 30 years and they had loyal customers who moved away and would travel over 100 miles, past a dozen car dealers, to buy a used car from them. His prices were higher than your typical used car place and sales were good, but he wanted to get more new customers. When I dug deeper into his business, I found that he used a meticulous checklist to evaluate a car and make sure it was worthy to sell to his customers. When asked if he told people who visited his car lot about his procedure, he said he didn’t because his good customers already knew it. When he started telling prospective customers about his process, price became less of an issue and his sales went up.

If you’re not happy with the money you get to keep after paying expenses, try asking your customers for a raise. If you’ve increased the total value offer, they’ll be happy to pay you more because they will feel they’re getting more.

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