Is Increasing Product Price the Right Way to Increase Profits

The object of any business is to generate revenue, which leads to profits. If there are no profits the business will not be able to survive. There are a number of reasons why profits might decline including increased expenses, increased cost of goods, and a reduction in sales. When profits falter many businesses automatically look to increase the product cost with the idea this will increase profits.

While you may get the outcome you are looking for, it can also backfire on you. When a product price increases even by a small margin consumers are more apt to begin to price compare and look for that product elsewhere. If they are successful in doing this you lose customers, which has the opposite effect that the company was hoping to achieve.

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There are a number of ways to increase profits for your business and not all involve increasing the price of the product.

1. Cut Costs – There are many ways to cut costs including a reduction in staff or hours of operation, reducing expenses such as office supplies, or advertising. Advertising is one of the largest expenses most companies face.

2. Set Targets and Sell More– Establish sales goals for sales staff. An increase in productivity can lead to an increase in profits. You could establish a bonus system when staff meets those targets.

3. Expand Your Products/Services – Add new products/services, eliminate those that aren’t selling. Some companies review their product lines every six months to ensure they are always carrying the products that are in demand.

4. Increase Prices – The price charged for a product/service should create the highest possible profit. As we mentioned earlier. Anytime you increase the price of a product you run the risk of losing the customer.

Things to Consider Before Increasing Product Price

1. The Market – The price you can get for your product is determined by the market. Remember you can only charge what a customer is willing to pay. If you go over that you simply won’t sell your product/service.

2. Penetration Price – If you are trying to get a market share, one strategy is to use what’s called a penetration price where you sell the product/service for less than the competition thereby gaining business. The hope is as you increase your prices over time those customers will remain with you.

3. The Competition – How much you can sell a product for depends to some degree on the amount of competition you face. For example, the online market has far more competition than a local town market. Therefore if you sell online you will likely have to sell your product for less than if you just sell in your local market.

When there is a need to increase your profit increasing product price is certainly one option you have available to you, but before you decide to use this option, consider all of the other options you have available to you and then decide if increasing product price is the right way for you to increase profits.

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