Gas Prices Change & So Can Yours- Business Price Elasticity

Sometimes I have to literally hold back my laughter when I first speak to some business owners.

The reason I want to burst out is when I am told this: " I have a decent amount of customers/clients but I don't make as much profit from them as I expect. What should I do and please don't tell me to raise my prices because I can't".

Ha ha ha is what I want to say, but I just keep that to myself. If I think they are a reasonable person I always decide to give them reasons why they need to not throw raising prices out the window.

Obviously there can be a number of factors as to why a business is not profiting on solid revenues besides your pricing. It could be too many unneeded employees or an overpaid staff (not likely in a small biz but you never know).

It could be a highly inefficient set of processes to get things done, or a lack of processes altogether. This is usually the case especially in the throwing bad dollar after bad to useless marketing just for the sake of saying marketing is done. Another bad habit of small businesses and even worse than no marketing at all, which is entirely different subject.

It could be horrible or non-existent customer service and management. Also a big small business problem.

And it could be the lack of savvy in the tracking, reading, and usage of financial reports and metrics. Many small business owners think they are not large enough to utilize these tools. All you need is a 1 person shop and they are most certainly useful. They also don't take up as much precious time as anyone thinks to generate and utilize.

Many of these issues come about from business owners they don't have time or they are too small to think they have issues in these business aspects. Totally untrue.

It's just too easy to say it's unnecessary and not do it because lack of knowledge or desire to educate yourself is an excellent excuse to make other things more important. Things you would rather be doing and/or already know how to do. We all do it.

Don't get me wrong. You should do what you are good at but as an entrepreneur, you can't just stay ignorant to other issues. Either way you need to know enough to recognize problems. The rest can be done by someone else.

Let me get back to the price factor before I go too far off on a tangent. So why do I laugh at the "I will not raise my prices" comment?

Well, first off it clues me in that this business owner may very well have made a non-commodity business into a commodity business. If you provide a service and not an easily reproduced product, you should not be treating your business as a commodity.

With my audience at least, you are not making and selling microprocessors. That pricing says the smaller and faster it is, the more I can sell it for otherwise I keep prices similar to the rest of the competition.

My target audience is selling abilities, customer service, and high value to its clients. That's what they are paying for. With that said, if an inferior competitor is selling his services for $100 an hour, why in the world would you have to do the same or less?

All that says to everyone else is that the inferior guy is smarter than you because everyone knows you are at the same price (or less) and he still has clients. It also says that YOU don't value your services.

Take for example a doctor. If you needed a heart transplant are you going to the surgeon in the cheesy hospital that will charge $5000 and leave a huge scar or the surgeon that is known for doing a great job with an excellent success rate in a state of the art hospital that charges $10,000. Even if your insurance doesn't cover as much.

Seriously, which surgeon would you use? And which surgeon are you?

Think about it. Statistically speaking businesses and most people do not shop on price alone. Actually, price is pretty far down on the list unless that's all you have to offer. If all of your clients buy based on price, you are in the wrong business or chasing the bottom of the barrel type of clients.

So how do you go about raising your prices?

Well I need to leave you hanging on this one. I'll continue in the next post with a couple of hints for you.

To Your Business Success-

George Sierchio
The Consultant's Coach