5 Things That Drive Profit When Doing Price Increases

Price increases have the potential of increasing profits significantly. Afterall, a 3% increease in price delivers on average 30% increase in profits (the average company has a 10% profit margin).

So why don't everybody just do it? Well, there are some things to do and watch out for when applying price increases:

• Understand your brand's health and customers' willingness to pay: if the market place is not willing to pay the increased price then any price increase will be met with heavy resistance. You can gain a lot from e.g. conducting price research ahead of the price increase, at least in some key markets, to understand customer's willingness-to-pay. Spending 5K$ on knowing that your customers are willing to pay 5% is a very good return on investment in most businesses.
• Communicate about values of your product/service, before, during, and after your increase helps on acceptance of the price increase. Nobody like a surprise increase. Nor an increase where the don't see the value. So if you have communicated diligently about your value drivers, there will be less resistance.
• Train your sales team: if your sales team doesn't support the price increase they will not whole-heartedly defend it when negotiating with the customer. Equip and train the sales team to better handle the price increase.
• Have revenue control systems in place: use price management software to make sure that the pocket price (gross price minus discounts minus off-invoice rebates) is respected by your teams, and that any pocket price below corporate guidelines must go through one or more levels of approval. The mere existence of such a system will make sure that you get more/most of the price increase implemented, and not just seeing a gross price increase eroded by a similar increase in sales-led discounting.
• Make it a habit: successful companies do price increases every year and condition their customers to that there is nothing extraordinary about price increases.