Should I raise my prices? Every business owner asks this question. Raising prices could mean losing customers to competitors.
If you operate in a low-margin business where everyone looks at prices, raising your prices may not even make sense. (Actually, what would make sense would be to get out of that market and focus on a different market)
I, too, have often hesitated to raise my prices. In fact, for many years, I believed in the dogma charge slightly less than the average, and you shall gain market share.
I since have abandoned that dogma. I went through a phase where my building materials business was operating at full capacity and could not take on new work in the short term. I raised my prices to manage demand, and I noticed all these unexpected benefits in the process.
So here go eight amazing things that might happen if you decide to raise your prices.
Table of Contents
- Higher prices attract higher quality clients
- Higher prices means you can afford to hire staff and delegate the work
- Higher prices will improve your cashflow
- Higher prices lets you do more advertising
- Higher prices will get you out of the hamster wheel
- Raising your prices will improve your relationships with your suppliers and vendors
- Raise prices and see an improvement in the quality of the work
- Higher margins make entrepreneurship fun again
Higher prices attract higher quality clients
You know those customers that call and immediately ask, “what is the price.” Or they send a one-line message “how much”?
These are the worst customers. Cause you know that their focus from day 1 is price price price. They will squeeze you left and right, and they will start micromanaging every aspect of your work.
They tend to be late payers and require a lot of hand-holding to get through the work. They always seem miserable because their focus is always cost rather than value.
On the other hand, higher-quality clients are turned off by continuous offers and discounts. They are happy to pay more, as long as it makes their work more productive.
The other day I drove by a spa advertising a special 15 euro massage for 30 minutes. I was immediately turned off. My instant reaction was, I bet this is a cheap and hurried service. And I also bet that the company makes no profits.
If you are always giving out low prices, customers will wonder if you are legit.
Higher prices means you can afford to hire staff and delegate the work
How often have you told yourself I could hire someone to help out, but that would eat into my profits. There won’t be anything left over for me!
This is why you need to raise your prices. You will have a more considerable margin, so it will make sense to hire additional staff. But here’s the best part: That extra margin can be used to grow your business.
And you will also have more time left to strategize on building your business. As Michael Gerber wrote in the epic book The E-Myth Revisited, you should be working on your business, not in your business.
Higher prices will improve your cashflow
When I raise my prices and everything else stays the same, my profit margins go up. Extra margin also means extra cash at the end of the month—extra money to cover an unexpected expense in your business or your personal life.
The extra cash could cover a customer not paying on time or a faulty batch that would force you to give out refunds. Never underestimate the power of extra cash. It will get you out of a lot of messy situations.
Higher prices lets you do more advertising
I used to sell this digital product for $97. It was a nightmare to sell it. I was getting some sales through organic means. But advertising with google was impossible. The amount of traffic I needed to make a sale led me to barely breaking even.
Some weeks I paid $150 to acquire a customer. It was a loss-making operation. So I pulled the plug and relaunched the product. I had to raise my prices at twice the original amount. The product instantly became profitable; I invested the profits in growing my youtube channel, which led to even more growth.
Higher prices will get you out of the hamster wheel
I once had this customer who ran a small food processing factory. He employed about 20 people. Whenever I met him, he always seemed to be running a hectic life on a hamster wheel.
He was always late for meetings. Every time he spoke, he would mention its absolute chaos around here. Every day there was new drama to attend. He was always late in paying. His company never turned a profit. He complained to me that the big supermarkets kept on squeezing his margins.
He had dug himself in a big hole, with lots of debt and discounted prices. He had no buffer to negotiate better terms. His best employees left him as he didn’t pay well.
Eventually, he went out of business.
Raising your prices will improve your relationships with your suppliers and vendors
When our margins are squeezed and our cash flow is down, we always look to cut corners. We may inevitably be late in paying suppliers, or we will keep on asking for better prices.
Such concessions always create resentment among our partners. Yes, they will continue working with you, just like we continue working with customers that haggle.
But you don’t want to be just another low-profit customer for your supplier. You want to belong in the top 10%. The top 10% pays on time, makes big orders, and doesn’t micromanage the process. You want to be the dream client for your supplier, so they will always be happy to serve you.
Raise prices and see an improvement in the quality of the work
I have noticed this in construction projects. Whenever I give a low price, I am always wary of how we deliver the work’s quality. I make sure that product consumption does not go over budget. I focus on providing good work, but we do not have the budget for delivering excellent work.
If a customer is paying a higher price, I will gladly tell my staff to spend an extra two days on the project to deliver quality.
We see this in all types of contract-related work. Go on Fiverr, and you will find people who charge $1000 to set up your WordPress site and others who will do it for $120. You might think that you will get a deal with the cheap guy until you realize how much time you spend making corrections yourself.
Higher margins make entrepreneurship fun again
And finally, entrepreneurship is about having fun along the way. Running a business is no longer fun if you are running around like a lunatic trying to stay afloat. That is why I always ask myself if I need to raise my prices.
If you feel you need one extra project to survive the month and make payroll, well, then that is longer fun.
Raise your prices, and you will grow your business. You will get customers that are a joy to work with. You will have enough money left over at the end of the month that makes everything worthwhile.
Having more money means more resources to experiment and grow your business—more money to take on staff and relieve yourself of the work.