I recently met with a business owner that has operated a residential service business for over 20 years. He has about 10 employees, and his main frustration is that he is “maxed out”. He never goes on vacation, personally works well over 60 hours every week, and dreads the phone ringing and new customer inquiries.
I asked one simple question. “Why don’t you raise your prices?”
He went into a detailed response that made little sense to me. “Dave, you must understand that I must be fair and affordable in what I charge. I really work hard to keep my prices down, and I would never want to gouge anyone. In fact, sometimes I discount to help someone that can’t afford my services.”
On the surface, that sounds kind and generous. How kind is it to his wife and children? How kind is it to his employees who he can’t afford to pay what they are worth? How kind is it to his vendors that have to call and ask for their money and wait to be paid?
Let me get right to the point. If you are not running a business that makes a strong profit AFTER you pay yourself and your employees well and take care of your vendors, you are on a hamster wheel and will eventually crash. Your business needs to work like a good servant, and you the master, not the other way around.
I challenged him to get a clear picture of the financials in his business; things like fixed expense, break even, gross profit margin, receivables, and cashflow. Then I asked him to project those same financials for a year based on increasing his prices 20%. This rough estimate demonstrated that everything could change for the better.
The sad part of this story is that unless someone holds him accountable to take that action, it is unlikely that there will be a change. The status quo will reign, and the owner and the business will eventually crash and burn.
A business is an objective enterprise that will run well if it is based on sound logic and reason. It gets into trouble when emotional creatures start making decisions. A profitable business can be a blessing and give to many hurting people. If you have a heart to do that, then I urge you to take the steps necessary to create an enterprise that can give to others out of abundance and joy and not scarcity and guilt.
Discounting and bargain basement prices will not attract the best customers. Healthy prices communicate to your marketplace that you are a better business that offers better products and service. A robust pricing structure will create a healthy cash flow that will empower you to reach your financial goals. With a strong profit, you can take care of your customers, your vendors, and your employees as well as your family and yourself. You will be able to generously give and be a blessing.
My question for you is this: “Why don’t you raise your prices?”