How To Increase Your Profits By 35% Right Now

November 19, 2007

When was the last time you increased your sales prices? Believe it or not, some companies I’ve dealt with have gone for years and years without increasing their prices at all.

Does this sound like a smart way to run a business? I think not. Yearly inflation rates will always ensure that anything you buy is going to cost you more. So, if you’re not increasing your prices regularly you’re losing money.

Now, before you start banging on about all the customers you’re going to lose, if you increase your prices, let me show you what would happen if you increased your prices by 10% and also lost a massive 10% of your customers as a result:

Fred’s Discount Store did 1000 sales last year at $100 a sale.

Fred’s total sales were $100,000 and his profits were $20 a sale, so total profits were $20,000.

Fred was tired of working hard and making very little, so he decided to increase his prices by 10%. So, he was now charging $110 per sale.

10% of Fred’s customers didn’t appreciate the price increase, leaving him with only 900 customers the following year.

But, Fred was now making $30 profit per sale. Despite losing 10% of his customers Fred was making $27,000 profit instead of $20,000 for doing less work.

By increasing his prices by only 10% Fred’s profits had increased by an astonishing 35%.

So, the point is, don’t be afraid to increase your prices. A small increase in sales price can mean a huge increase in profits for less work.

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Comments

6 Responses to “How To Increase Your Profits By 35% Right Now”

Mrs. Micah on November 19th, 2007 3:54 pm

Nice math. A lot of vendors we contract with stipulate a 3% increase each year. That keeps it from looking like a lot all at once.
Ian Denny on November 19th, 2007 5:31 pm

Very true. If you doubled your price and lost half your customers, you’d get paid the same for doing half as much work!

So glad to see you back with those pearls of wisdom.

Hope you’re well!
SEO Optimization on November 19th, 2007 5:43 pm

Well said Catherine and smart moving. The proportion makes sense and makes me think about some of my prices to increase even tho really it is not needed at this point.

And… Welcome back good to hear you are doing much better now.
cathlawson on November 20th, 2007 8:09 am

Hi Mrs Micah - definitely - small increase each year looks a whole heap better than a large amount at once.

Thanks Ian - I love the way the Maths works out on things like this. If Fred that I used in the example douled his price and lost half his customers - he’d still treble his profits.

Am feeling much better thank you - I thought I was on my last legs!

Thanks Astrit - it may be worth it for you. It means you will make more money for less time.
Barbara on November 20th, 2007 8:37 am

HI Catherine,

Too often we don’t look at the “big” picture, and we only think we may lose customers if we raise our prices. Your math gives everyone a quick lesson is “the end result”.

With gas prices on the rise here in the US, we have found it necessary to raise some of our prices, and our customers have totally understood.

I think as long as price increases aren’t abused, your customers will realize it’s just a part of being able to succeed in business. And if they continue to get value for their dollar, their loyalty may not wane.
cathlawson on November 24th, 2007 7:59 am

Hi Barbara - exactly. So long as you are providing value, most of your customers won’t mind the price increase. Is the price of gas really getting that bad? How much per litre? In the past, I’ve always found US gas prices so reasonable in comparison to UK prices.