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Episode Info: During the course of running a business you are going to have to raise your prices. Price increases are unavoidable if you want to stay in business. You have to constantly monitor your price point and your costs so that you are both competitive in the market and profitable. Raising Prices to Keep up with Inflation The most common reason for raising prices is inflation. When it costs more to get your product to the consumer you have to charge more to cover the costs and make a profit. In good economic times you can expect a general inflation rate of 2%, sometimes it’s higher sometimes it’s lower. Your increase in costs may even be higher depending on your industry or the many variables associated with your business. As a business owner you need to know your costs, and your margins, at all times you in order to determine if your product is at the right price point. Allowing your margins to slowly erode will kill your bottom line. You're devaluing your product/service by holding your price and accepting a smaller margin. One of your most important jobs, as a business owner, is to protect your margins by demonstrating value to clients and customers and come to market profitably. In order to consistently, and incrementally, raise your prices you need to have already done the work. That is to say, you need to be positioned in your market competing on more than price alone. You need to already have done the marketing work and differentiated yourself and have a product/service that provides a lot of value. If you haven't done the work, you are going to have challenges every time you need to raise your price and protect your margins. You should fear a shrinking margin more than losing a customer. There's plenty of customers and opportunities in the world. Ever heard the saying - there's plenty of fish in the sea? You can always go fishing. Unfortunately, shrinking margins is cutting off the life blood of your business; you can't go fishing with out a rod or reel. Most small businesses will not do enough volume business to make up for a shrinking profit margin. Incremental price increases are far easier to implement than larger ones. Did You Enter the Market too Low? Many business owners enter the market under pricing their product/service believing that they will have a higher sales volume if the consumer is convinced that they are the least expensive alternative. Outside of commodity items, there really is no correlation between lowest price and the most sal
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