In the past week, I’ve seen several marketing tools massively increase their prices — on a dime. And, I don’t mean by a dollar or two – I mean by like more than 50%! I’m not going to guess about what triggered this, I’m sure it’s much more than any single event. In fact, I think most of these businesses tried as hard as they could to keep prices steady but the trickle-down of inflation and the sudden price increase for use of a certain platform’s API has pushed these platforms into increasing prices.
When something like this happens, this is going to hit you, as a small business, and as much as you want to keep prices where they are — you simply won’t be able to stay in business if you don’t.
The Tell-Tale Signs That Your Prices are Too Low
Some obvious triggers that indicate it’s time for you to raise prices include:
High demand: If you have more work than you can handle, it’s a sign that you’re in a strong position to raise your prices.
More importantly, if you have a lot of customers who are paying a low price and chewing up resources.
Increasing business costs and vendor price increases: If your costs for materials, labor, or other expenses are consistently rising, it may be necessary to raise prices to maintain profitability.
This is most likely where you find yourself today. When economists talk about trickle-down, I’m sure they weren’t thinking about this. But this is where we are. Large suppliers from every sector are reporting insane profits from price increases and they are forcing you to raise your prices just to stay in business.
But that’s where we are — and as much as you want to hold tight, if you don’t have a process for raising prices, you won’t be in business.
Market research: If your research shows that your competitors are charging higher prices or that your prices are below the market average, it may be time to raise them.
Once you’ve proven to yourself that it’s time to raise prices, it’s time to take a look and figure out exactly what to do.
The steps I’m going to outline here are a regular part of the product management process. This is something you should do at least once a year.
Take a Fresh Look at Your Offer
When life gives you lemons, you make lemonade. And when you’re facing the need to raise prices, that’s a huge opportunity to take a fresh look at your offer and see how you can create more value for a higher price.
How much does it cost to create and deliver your offer?
The first thing you want to do is do a deep dive on the what the real cost is of your offer. And when I say real cost, I mean every little thing; the cost of producing the offer, the cost of supporting the offer, your time, any team member’s time, the software, energy — all of it.
I’ll say it again; deconstruct every aspect of your offer and assign a cost to it. You’ll be amazed at how much time, money, and effort goes into delivering customer value.
Find similar offers and alternatives in the industry
Notice that I didn’t just say to do competitive analysis. I want you to go out there and find similar offers and alternatives to your offer. Pretend they are yours and do your best to deconstruct every feature and element of the offer and estimate the cost.
Uncover what your customers really value
As a separate activity — preferably by someone else, get out there and figure out what your customers really value and why.
Let me be more clear: identify your ideal customers (the kind of customers you wish you had hundreds of). Your ideal customers are your most profitable customers. Since you want more of them, you want to figure out what they really value so that you can turn up the volume on those aspects of your offer and attract even more customers just like them.
Set appointments with those people and just talk to them. Your goal is to identify what they love about your product or service, what they value most, what’s missing that will make your offer even more irresistible.
Take notes, really listen and dig in. Get into the details of
- How your offer helps them be more successful?
- In what ways does your offer save them time and money?
- What tasks does it replace or eliminate?
All of these questions (and their answers) give you the opportunity to literally quantify the time, money, and value that you provide.
Here’s an example:
I did a project where I contacted a variety of customers for a manufacturer. When I asked them what they loved most about working with this company they said — “I love that when their shipment comes in, the label is in a convenient location. That means that when the shipment comes in, we can easily scan it and don’t have to look for it.” Then I asked – how much time does that save you — and they said something like a minute per pallet. When you consider that we process about 200 pallets a day — that’s more than 2 hours of savings. Then when you consider that it takes 2 people to run that process, that’s 2 hours per person — that’s real savings.
Play Mix and Match
Now you take what you’ve learned from your customers, from the industry, and from other alternatives that your customers have and start mixing, matching and creating new offers.
Elements that make up an Irresistible Offer
Bet you didn’t think there was a formula for an irresistible, but there IS.
This formula comes from Alex Hermozi’s book $100M Offers.
This formula is a fraction with the customers’ dream outcome and likelihood of achievement divided by how long they have to wait to achieve the outcome and the amount of work they have to put in to achieve the outcome.
In short, you want the numerator to be HIGH and the denominator to be LOW.
Let’s break down the information you’ve collected and how it fits into this process.
Much of the information is going to come from the interviews you’ve had with your customers:
Dream outcome: What they wanted to achieve or problem they wanted to solve with your offer.
Likelihood of success/Time Delay/Effort: See how many of your ideal customers were successful with your offer. Based on their experience and effort, how long did it take them to achieve the result. What were their success behaviors?
Look for High Value – Low Effort Elements
Now, you’re ready to start finding those elements of your offer that don’t take a lot of effort, but provide a lot of value.
Here’s an example:
A manufacturer was spending a ton of money sending salespeople out to physically see customers. When we asked customers how much they valued that interaction — they said they didn’t. They mentioned that they would much prefer to get an email with any offers or specials rather than seeing a sales rep.
Note, they didn’t mind having a call or a meeting, but meeting face-to-face wasn’t seen as a real value!
BOOM — imagine how much time and money the manufacturer saved by actually giving the customer what they want!
Here are some other options you might consider.
Create Lower-Cost Options
Look, when something isn’t in the budget, it isn’t in the budget. Use the process we talked about above to create a lower-priced option with fewer expensive features.
Create High-Value VIP Options
On the other side of the spectrum, create a premium option for those customers who really want a lot of support or access to must-have features.
One example that comes to mind is a restaurant that figured out that there was a group of customers who treated their dinner out as entertainment, so they offered a premium option for those customers who wanted a high-end meal and a private room and face-time with the chef!
No price increase discussion would be complete without mentioning the idea of creating long-term multi-year contracts where a customer can lock in a price for the promise of purchasing from you for multiple years.
Another option is to bundle products or services into an offer that provides decent value for the customer and serious profits for you. HINT: the idea here is to include high-touch customer service options and guarantees that few customers take advantage of.
This would be like a hotel charging you more for the option of a last-minute cancellation — when few people take advantage of that. That’s pure profit.
Unbundle – A la Carte Options
The opposite of bundling is un-bundling. In other words, give your customers the option of only buying or paying for what they use. This is a great way to keep customers buying while giving them the same price or lower price — that guarantees profits for you.
Don’t Fear the (Price) Increase
While the thought of raising prices can be daunting, it shouldn’t be seen as an entirely negative experience. By taking the necessary steps to research and execute a well-planned price increase, you can benefit both yourself and your customers in the long run.
Effective market research and customer engagement are key factors in this process. You can raise your prices with confidence and reassure your customers that the value of your product or service is worth it.
So, don’t fear the price increase – embrace it as an opportunity for growth and success.