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Raising prices in tough times
March 20, 2008
I wonder how many companies need to raise prices now because their costs have increased due to soaring energy prices. But they have this great fear that you cannot do this in tough times.
When your costs increase and you fail to pass this along to customers, you have effectively discounted. This may even be a compound discount—the customer negotiated sharply a lower price to begin with, you threw in some value added to sweeten the deal, offered payment terms which they take advantage of but don’t comply with and you forego the increase. How many ways can you discount and stay in business?
There may be a more fundamental question to ask before raising prices: Are there unprofitable customers to whom we could reduce the number of services that we offer to stop the bleeding? I call these customers profit piranhas—customers that chew away at the bottom line. Can you lower your cost-to-serve and improve your overall profit position before raising your prices?
Posted by Tom Reilly on March 20, 2008 | Comments (0)