1. Is Increasing Product Price the Right Way to
Increase Profits
The object of any business is to generate revenue, which leads to profits. If there are no profits
the business will not be able to survive. There are a number of reasons why profits might decline
including increased expenses, increased cost of goods, and a reduction in sales. When profits
falter many businesses automatically look to increase the product cost with the idea this will
increase profits.
While you may get the outcome you are looking for, it can also backfire on you. When a product
price increases even by a small margin consumers are more apt to begin to price compare and
look for that product elsewhere. If they are successful in doing this you lose customers, which
has the opposite effect that the company was hoping to achieve.
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There are a number of ways to increase profits for your business and not all involve increasing
the price of the product.
1. Cut Costs – There are many ways to cut costs including a reduction in staff or hours of
operation, reducing expenses such as office supplies, or advertising. Advertising is one of the
largest expenses most companies face.
2. Set Targets and Sell More– Establish sales goals for sales staff. An increase in productivity
can lead to an increase in profits. You could establish a bonus system when staff meets those
targets.
3. Expand Your Products/Services – Add new products/services, eliminate those that aren’t
selling. Some companies review their product lines every six months to ensure they are always
carrying the products that are in demand.
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2. 4. Increase Prices – The price charged for a product/service should create the highest possible
profit. As we mentioned earlier. Anytime you increase the price of a product you run the risk of
losing the customer.
Things to Consider Before Increasing Product Price
1. The Market – The price you can get for your product is determined by the market. Remember
you can only charge what a customer is willing to pay. If you go over that you simply won’t sell
your product/service.
2. Penetration Price – If you are trying to get a market share, one strategy is to use what’s
called a penetration price where you sell the product/service for less than the competition thereby
gaining business. The hope is as you increase your prices over time those customers will remain
with you.
3. The Competition – How much you can sell a product for depends to some degree on the
amount of competition you face. For example, the online market has far more competition than a
local town market. Therefore if you sell online you will likely have to sell your product for less
than if you just sell in your local market.
When there is a need to increase your profit increasing product price is certainly one option you
have available to you, but before you decide to use this option, consider all of the other options
you have available to you and then decide if increasing product price is the right way for you to
increase profits.
© 2011 Apptivo Inc. All rights reserved.