Small Business Solutions

2021 Small Business

Sentiment Survey

Time could be right for price increase

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn

Back in the early 2000s I worked for a company that was owned by a private equity firm. The private equity firm had lots of businesses in America and the owners hoped they all would flourish and make money.

The private equity folks were located in New York City and they had a building full of experts that they would send into the hinterlands to teach us how to be better at business. One day they sent down some experts on pricing.

These guys came from the best schools and made a presentation on how price affects your profitability. Back at that time, Walmart was like Apple is today. Walmart was revered and looked up to as a model company.

If you decide to increase prices, the best advice is to be low-key about it. Does Amazon or Walmart contact you when prices go up? In some cases, key customers may need to be contacted and an explanation of the increase given.

Walmart marketed itself as offering low prices because it did so much volume. That thinking was permeating into the business world. You would hear small business owners say, “We are going to cut prices and make it up on volume.”

Price increase is your pay

Even though their presentation was nearly 20 years ago, I still remember a good deal of what those price experts said. To condense it, they said few companies could do what Walmart was doing. They said small businesses that went down that road often failed. They had slides and graphs to show the carnage.

Later I left that company and went out on my own. I have bought, operated, and sold several businesses over the years and I own businesses today. What those experts said that day still sticks with me.

I have never been a big fan of cutting prices because I know my costs often cannot be cut at the same percentage that I lowered the price. So that means I get a pay cut. I am not working six days week to get a reduction in pay.

And you shouldn’t be either.

Your biggest lever to move your business is price. We know that prices too low and prices too high both get you to the same spot, bankruptcy. Prices just right get you success and allow you to reinvest profits into your business and give your employees increases.

But what is right? It is often more than what you are charging or think you can charge. Rarely is the right direction to reduce your current prices unless you have greatly altered your cost structure. Keep in mind when you increase prices, there are no expenses associated with it. There could be a reduction in revenue if not done right, but your expenses don’t go up.

In our recent business survey, where McElvy Partners surveyed 124 small businesses, 52 percent of those businesses expect their vendors to charge more this year. Forty-two percent expect prices to remain the same.

This, along with the talk of inflation coming (fuel prices have surged since November), should make all of us look at our prices. If you have not increased prices in the last couple of years, 2021 might be the year you need to do so.

If your suppliers increase their prices, you will have to follow suit, or earn less.

We also think our survey indicates that as businesses begin to fully reopen, ultimately there will be price increases as demand picks up.

If you order parts or go into hardware stores, you are probably noticing empty shelves or parts that used to take a week to get in are now taking twice as long or longer to reach your door. Supply chains are still crippled from the pandemic. Combine this the federal government “air-dropping” money into people’s bank accounts and there are more people wanting buy things.

So we have more buyers and less things to buy. That usually means prices go up.

If you decide to increase prices, the best advice is to be low-key about it. Does Amazon or Walmart contact you when prices go up? In some cases, key customers may need to be contacted and an explanation of the increase given.

I know of a company that increased prices early in 2021. In discussing how the increase might go over, one of the partners in the firm noted that an additional service was now being provided but had not been explained very well to the customer.

So when there were conversations about the increase, the new service (which cost the company raising prices very little) was better explained and promoted. Point out your value if you have a price increase discussion.

The other day I was paying a bill at my chiropractor’s office and I noticed the price was higher than before. I asked about it and the lady at the front counter said there had been a price increase. She seemed almost ashamed.

I said, “That’s fine. Just checking. I would rather pay $5 more today than not have you here next year.”

If you are running your business well, I expect many of your customers might feel the same way.

 

Robb Reeves is the vice president of McElvy Partners, a company that specializes in print and digital marketing solutions for small businesses.

RECENT ARTICLES