How To Scale Up Your Tiny Business: Part 1 – Raising Prices

TweetWhen you own a tiny business, the difference between being slammed and being dangerously slow could be one or two projects.

This may be your situation:

If you lose or complete one or two projects you will be crippling your business because you will be WAAAAY under capacity and not bringing in enough cash?

–AND/OR–

If you get a couple more projects you will be completely swamped and in danger of delivering poor quality or burning yourself out?

If you want to scale up and make more money — you will have to either:

1.  Raise Prices
2.  Reduce Costs
-OR-
3.  Increase Capacity

All of the above have their ups and downs and this three part post will address each in turn —

How To Raise Prices

So, you’ve done the math…

You need to have $6,000 in total revenues each month.

You can handle 4 projects at one time without giving the customer a raw deal and yourself an ulcer.

Simple, you need to charge $1500 per project.

The problem is that you are currently charging $895 and nearly doubling your prices is a risky proposition.

You Are Priced Right In The Middle

Let’s assume that you have done the due diligence to find out whether you are priced right and you find yourself smack dab in the middle of the pack.

Your prices are average.

To that I say ——- WHAT!  Average?  Is your business AVERAGE?

If your business is indeed average — you need to be priced lower than everyone else.

That’s right… when your business is no different than any other business there is only one criteria that your prospects will look at when choosing where to buy — PRICE.

This means that you better be priced below your competition if you intend to sell average products and services.  And if you intend to thrive using a “cost leadership” strategy, you will need to figure out an innovative way to drive that price down to a point that is very difficult for your average competitors to duplicate.

If You Are Going To Charge A Premium…

Why does someone pay $2,000 for an Apple laptop when they could pay $800 for a Hewlett Packard?

Why does someone pay $2.45 a pound for apples at Whole Foods when they could pay $.89 a pound at Shop N’ Save?

Why

In each case, the premium is being paid for three different characteristics that you must establish for your tiny business if you would like to charge premium prices as a strategy for scaling up your business.

• Community
• Superiority
• Referrability

Creating Communities Raises Prices

Apple has created a community of people around their products.  They are rabidly loyal to Apple — it’s almost frightening how loyal some Apple fans are.

Whole Foods is a community as well.  People identify with organic and sustainable farming and are willing to pay a premium to be a part of a company that creates and supports that community.

People are willing to forgive the higher price for the MacBook or Sweet Delicious apples — it’s not about price, it’s about being part of something.  Identifying with a brand that you believe in.

While you certainly don’t want to gouge your community with high prices, you are able to charge a premium for “membership into the community.”

Stop and think about what communities you are a part of that are attached to products, services or companies.

How could you make your products and services less about price and more about being a part of something?

Having a Superior Product/Service Creates Higher Prices

Real or perceived superiority in your products and services creates higher prices.  Often, when entrepreneurs think of superior products and services they picture themselves emerging from a locked room that stinks of delivery pizza and take-out chinese food with a brilliant, million dollar idea.

Let’s get real.

I hope this happens for you and that you make it happen.  But your product or service may be superior to your competitors simply because you have

• a better way to deliver it
• more streamlined processes that make it easy on the customer
• killer “packaging” that makes me “experience” the product or service
• created a “twist” that truly addresses a need in a specific niche

There are 1000′s of other ways that your products and services can be different.

But one thing is for sure, if there is no differentiator — your prospect will look closely at the price tag.

Referrals Create Higher Prices

Businesses that are highly referrable can charge higher prices.  In fact, people that are referred to your business usually have an expectation that you will be a premium provider.

They have moved past the trust hump.  They have something to differentiate your business from the others — besides PRICE.  That something is that you were referred to them by someone you trust.

Being referrable is often simply a symptom of creating a community and being a superior company.  But it is also about the process of asking for referrals and creating a network of referrals.

For more about charging higher prices by becoming more referrable, I recommend reading or listening to The Referral Engine by John Jantsch.

What are your thoughts about charging premium prices?  What tips do you have for the rest of us about raising prices and pricing strategy?

Read Part II of this post on Scaling Up Your Tiny Business by Reducing Costs