Its looking at your margins – both your gross margin (factoring in what it costs you to sell or make your product or service) and your net margin (which takes account of all of your overheads and expenses).
It's the first area of the five to focus on because many of the strategies you could use to increase your margins require little or no financial investment.
A few questions for you to mull over on this subject:
- When was the last time you looked at what your competitors charge? (Are you undervaluing yourself?)
- What are the gross and net profit margins for your industry (How do you compare?)
- Do you price for profit? (Do you know how to?)
- Do you know which of your products and services are most profitable (And does your marketing focus on these)?
Increasing prices is an incredibly emotive subject. Of course increasing your prices is only a viable strategy if your target market will pay more. So you’ll need to demonstrate that you, your product and the experience are worth it. While Harrods might be able to charge £20 or more for a pizza in their Prosecco Bar, its unlikely that a local Italian restaurant would sell many of the same pizzas at that price.
And did you know that if your current gross margin is 40% and you increased your prices by 10% you could sustain a 20% drop off in sales before your profits would be reduced?
Food for thought?
P.S. If you’d like to learn more about pricing for profit we're running workshops in North London and we’ll be covering this subject. Come along for £19 (instead of the usual £95) when you use this link.