When to Raise Your Prices: The Cost of Waiting.
When to raise your prices is a question most owners avoid until costs force it. One dental lab owner waited nearly seven years and lost real margin. When he finally raised them, margins improved, but growth slowed, and that trade was deliberate.
Seven quiet years.
Frank Ingrassia ran a dental laboratory making crowns and dentures. For nearly seven years, he did not raise prices for anybody. Meanwhile, his costs rose quietly and continuously. As a result, gross margin fell nearly seven and a half per cent. That is the cost of not raising prices: close to two hundred thousand dollars of net revenue gone.
When to raise your prices, and where.
When he did act, he raised prices selectively on higher-value work. Then two things happened together. His margins improved by fifteen per cent. However, sales growth came in at twelve per cent, his lowest figure in years. So he lost something, and the story is incomplete without that loss.
Choosing margin on purpose.
The margin vs growth small business trade often favours margin without outside capital. Because growth you cannot fund just means going broke while looking successful. Yvon Chouinard warned that a company trying to have it all will die sooner. In pricing, that means wanting cheap volume and expensive margins together.
Decide when to raise your prices on one service.
Write the date you last raised any price you charge.
Then mark which piece of your work carries the highest value for buyers.
From the book.
"You have to be true to yourself; you have to know your strengths and limitations and live within your means. The same is true for a business. The sooner a company tries to be what it is not, the sooner it tries to have it all, the sooner it will die."
I Want to Start a Business but I Don't Have Money, chapter 7: Why you will price too low
Questions about when to raise your prices.
How do I know when to raise your prices is overdue?
If years have passed while your costs rose, your margin has likely been shrinking quietly, as Ingrassia's did.
What happened when Ingrassia raised his prices?
His margins improved by fifteen per cent, but sales growth fell to twelve per cent, his lowest in years.
Is slower growth a bad result?
Not necessarily, because growth you cannot fund can break a business without outside capital.
Read the whole chapter.
This lesson covers one section of chapter 7, “Why you will price too low”. The book goes further, with the full evidence, the stories and every exercise.
Lessons in this chapter.
- 01 Why Freelancers Undercharge: The Number Comes From You.
- 02 Anchoring Effect Experiment: Your Cost Is the Wheel.
- 03 Price Placebo Effect: What the Evidence Really Shows.
- 04 Penetration Pricing Risks: Why Cheap Can Sink You.
- 05 Water Diamond Paradox: Cost Is Not the Buyer's Value.
- 06 When to Raise Your Prices: The Cost of Waiting.
- 07 Gabor Granger Method: Test a Higher Price Tonight.
- 08 What Your Price Says About You: Read It Cold.