If you haven’t already, the time is now to raise your prices. If you raised your prices at the beginning of the year, maybe it’s time to do it again.
Yeah, I know. Customers won’t like it. I get that.
However, let’s take a closer look at what’s going on everywhere around you. Then, you’ll understand why I’m advocating this to you.
Everything Is More Expensive
I’m quite positive I don’t have to tell you this. Your supplies, inventory, freight, fees, really everything you use to run your shop has had some sort of increase either last year, this year, or both.
Are you keeping up?
I speak with quite a lot of shop owners every week. Either through planned coaching calls, inquiries into what I do, or at industry events. Practically everyone has told me that this year has been record-setting for them for sales. Shops are so busy that they almost can’t keep up. They are flooded with work.
Yet, my next question always stumps them. I’ll say something like, “That’s great! That’s awesome. Good for you. Are you seeing record profit margin too to go with that sales number?” The funny thing is, virtually everyone doesn’t know that number.
Profit is the missing part of that analysis. What good is a million dollars of sales if it costs you $999,999 to get the work out? It is the bottom line that is important here.
How closely are you monitoring the money that is going out? Do yourself a favor and start building a dashboard so you can get a better overall picture of your shop’s profitability.
Are You Busy Being Busy?
As my friend Mark Coudray says all the time, “Are you busy being busy, or are you busy being profitable?”
We all know that all orders are not alike. Some are full of profit, others not so much. Right now shops are slammed with work all around. They have never been busier.
What do you think the impact would be if there was a price increase? Maybe coupled with your shop raising the minimum quantities per order?
Would some of those dinky low-profit jobs disappear off your schedule? How much easier would it be to get better, more profitable jobs out the door, when a chunk of that work that isn’t making you money is removed?
If you haven’t already, do some math.
In your shop’s system, pull up September 2021. All of the jobs that you produced. Can you sort by total sales? Do it. If you can sort by overall profit margin, that would be better. (If you know that for each job)
My guess is that for the work that you produced in September, the top twenty percent of those jobs brought in about eighty percent of your revenue. That’s the 80/20 rule.
This means that the bottom eighty percent of your orders only helped add twenty percent of the money in the bank for the month. This is the group that I want you to examine.
What is it?
That’s a lot of work for a less than significant amount of money. Do yourself a favor and take note of the customers. What are you agreeing to? For these bottom-type orders, what if you increased your prices and raised your minimum quantities? How many of these customers would stick, and how many would go away?
What I’m Hearing
For the shops that I’ve spoken to, most have had at least one price increase. Most customers didn’t bat an eye. A few grumbled.
But here’s the thing. COVID is the best excuse ever in the history of business to request more money for what you do. For every single one of your customers, they are already paying more in their lives.
And it’s true. It costs more to do the same things from a year ago. Have you or someone on your staff recently spent an hour looking for 30 medium pink t-shirts to fill an order? Have you had to buy a different brand of ink because your normal supplier is out?
Maybe you had to add some staff to the shop, as you are so busy. Shops everywhere are paying several dollars more an hour and often a significant signing bonus just to fill out their staff.
Don’t be scared. The price increase is justified. Also, just so you understand the industry supply chain isn’t going to lower their price increases next year or the year after either.
The time is now to raise your prices. Do it.
Raising Prices Cheat Sheet
If you want to come armed to any pricing increase conversation, here are some top tips to use with a customer that wants to have a discussion about it.
- Overall, wages have increased at about a rate of 7.4% nationally. What have you implemented in your shop? Calculate the rate and be armed with that number.
- Who is your main competitor? Not that yahoo down the street that never does anything right…but that shop that you are always concerned about. What are they doing? If they hold steady, there is less opportunity for you for a price hike.
- You need to be prepared with an explanation. There is going to be push-back. Have your data ready. Common things to discuss are the percentage that your supply chain has increased, the length of time that you haven’t actually raised prices, and even a discussion on the price increases that your customer has implemented. This is a conversation, so be prepared to have one.
- Can you lower other costs or keep some things the same? Screen or art fees. Handling charges for shipping or fulfillment. Know what you are going to keep constant.
- Have a Good-Better-Best scenario or pricing tiers. This could be based on your level of service to the customer. Timeframe for delivery. Even how you react to their orders. (fully automated online vs having a dedicated rep)
- Price-sensitive customers can get a stripped-down version of your service. Maybe this could include a longer production turn time, say three to four weeks for example.
- I would base all pricing on the actual costs of running your business, and not what other shops are doing. This is crucial to understanding your profit margin anyway. For help with this, get the Price for Profit book and build out your pricing based on the math of your shop.
“Price is what you pay. Value is what you get.” – Warren Buffet
“Price doesn’t make deals, and salary doesn’t control your career.” – Christopher Voss
“One man’s wage increase is another man’s price increase.” – Harold Wilson
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