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My four years as vice president of sales and marketing for a small business and my six years as a small business owner have taught me that projected costs and projected revenue don't always work out as planned. In my experience, if there is anything you can count on, it's that life will change your plans differently than you had expected.
I have found when I am momentarily overwhelmed by some unexpected change, the fastest way out of being overwhelmed is to take constructive action. At this point, any forward action, no matter how small, breaks the inertia that comes with having the bottom drop out of your world. I had to do this when I had a key employee in my small business leave unexpectedly. Admittedly, I scrambled to find a replacement and then to reassure my customers.
The same principles apply to issues that affect your pricing. However, to take positive action, you must know your true costs. Then you can identify what direction to take if your actions are to have a positive effect. Failing to make changes means you discounted your products and are losing profits. When you have no profit left, you have no business left either.
10 Choices for Action When Your Pricing Comes Under Attack
When something severely impacts your profits, the following ten options can get you back to profitability:
- Increase your prices
Figure out what your new costs are and change your prices from this point forward. It's your call whether you want to give advance notice or make the changes immediately.
- Add a surcharge
Fed/Ex, UPS, and other delivery companies added gasoline surcharges after gasoline prices started shooting up with no end in sight.
- Create bundled products or services
In setting my coaching business up online, I find this is a common practice from Internet marketers. I'm creating a bundle now for one of my products.
- Add premium products to your mix
Ten years ago when I wanted to buy my wife a treat, I stopped at Circle K to get her a pint of Ben and Jerry's New York Super Fudge Chunk. I was amazed at the price so I went to Albertson's to see if they had a more 'reasonable' price. Albertson's charged the same price for this premium ice cream.
- Focus marketing efforts on people matching your ideal customer profilePeople who match your ideal customer profile will find greater benefits in what you offer and so are more inclined to pay a higher price to continue getting those benefits.
- Find new customer base
Who else would benefit from your products and services? How can they be used in a slightly different way that would serve a new market? I expanded my market by going after national service companies who lacked a local service representative in El Paso.
- Find new suppliers
This was a common challenge for us in repairing printers. Interestingly, price was not the most important factor. We looked for support on the wide variety of printers we repaired. We traded a premium on the cost of parts for the time saved trying to learn on our own. This translated to better customer service because of faster repair.
- Redesign your product or service
If one component gets too steep, then see if you can substitute another without dropping your quality as that will drop your sales. When the economy went in the tank in 2007, corporations cut their business travel budget. They still needed to meet with prospects so they turned to new technology which allowed them to meet prospects in virtual conferences.
- Cut your profit margin
This is probably the most common course of action small business owners take when confronted with rising costs. It is also the most risky. At some point, you run out of profit and then the next challenge to your pricing puts you out of business.
- Quit offering that product or service
While dropping a product is your action of last resort, it is sometimes the only choice left. If you have looked at every other avenue to return this product to profitability and nothing works, then cut it. The only reason to lose money on a product is if it is essential to making other sales that are profitable. In that case, it would be part of a package.
When life blindsides you with unexpected challenges to your pricing and to staying profitable, the best way to recover is to make positive changes. Provided you understand your true costs, these 10 ways to recover profitability will give you actions to take after your costs increase.
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