Why You Should Review Your Pricing Model

I recently had a meeting with a client who hasn’t increased the price of their products for three years. As a consumer, I would love to see this approach across a range of my regular hangouts, but as his accountant, I felt quite the opposite.

Many small business owners are concerned of the implications to increase prices in case their customer base looks elsewhere. I am not referring to any promotional marketing tactics on price. As a consumer, I myself don’t mind if my favourite local restaurant increases their price for a bowl of pho by $2, so long as the taste and quality remain the same, I won’t be tempted to look elsewhere. In fact, another client owns a restaurant and  they’ve increased their prices three times in the past year and business is booming.

The price of your products and services are not only to cover all cost increases, such as labour, rent, electricity, rates, raw materials and other overheads, but also a reflection and perception of an improved experience, quality and reputation of what your business provides. With a small increase in price, your regular customers won’t leave you and your business has the potential to gain magnified profits.

With an increase in profits from your products and services, you now have the ability to make informed decisions on how to allow your business thrive.

So what if you don’t review the prices of your products and services and leave it the same for too long? Your business will suffer with less profit and even incur a loss. Stress can impact you and your employees if your cashflow is stagnant and you are required to make tough decisions as to what expenses needs to be reduced. This could impact employees, such as having to replace an experienced labourer with cheaper, inexperienced staff or substituting a high quality material with a cheaper supplier. Ultimately, the quality of your end products and services is unlikely to stay the same and it will be noticed. This is the time when your loyal customers could abandon ship.

Inflation is just one factor as to why businesses should review pricing on a yearly basis. If you want to keep your business generating profit year on year, you need to provide quality products and services to your customers. Make sure a pricing review is on the your to-do list for January 2022.

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