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Why It's Worth Increasing Your Prices by Just 1%

pricing profit the numbers Apr 08, 2020

Many sellers think it's not worth increasing prices by anything less than 5%. But a small price rise can have a BIG impact on your bottom line.

In this article you'll discover:

  1. The facts behind the phenomenon.
  2. Why a 1% increase can make such a big difference to the dollar in your pocket.
  3. How to use this to make more profit.

 

When we think of price increases we often think of significant amounts – 5% to keep pace with inflation or 10% so that it will make a difference to our bottom line – but in fact we don't have to think like this.  

A price rise of just 1% can make a real impact.

Should we be thinking big?

Yes, we need to have big dreams but remember small is also beautiful!

You want to make more money, and you deserve it, but you aren't sure if it's the right time to raise your prices, right?

  • First, go back and read this article.
  • Second, read on and adopt this article's price increase strategy!

 

We're talking here about raising your prices by only 1% and this price rise leads to a much bigger percentage increase in your bottom line and that is in your pocket!

 

But it's not just me who says so:

In 2012 Dr Rafi Mohammed wrote a book about the whole phenomenon, 'The 1% Windfall: How Successful Companies Use Price to Profit and Grow' (HarperBusiness, March 2010)

Later that year, a fascinating McKinsey and Company study, 'Building a Better Pricing Infrastructure', found that if companies increased prices by just 1%, and demand remained constant, average operating profits would increase by 11%.

Why Raising Your Prices Just by 1% Makes Such a Difference

Your current profit comes from the amount of your sales minus the costs of production and your overheads.  By the time you have taken off all your costs, the actual profit left is often quite a small percentage of total sales revenue(your price list).  So, if you add 1% and there are no costs to meet out of that extra revenue, it increases the profit almost dollar for dollar.

  • If you're making 5% profit on sales, add 1% and you'll put 6% profit on sales which is a 20%  increase in profits.
  • If you're making 10%, a 1% price increase sales revenue means you're now making 11% profit which is a 10% increase in profits.

Of course, you need to be making a profit in the first place to benefit (but if you're not making a profit at all, why are you in business?).

Can you increase your prices by just 1%?

Figure out a way of doing it – it might be the easiest money you make today.

 

"Process can be changed on Sunday night and new profits will start flowing in on Monday morning." Dr Rafi Mohammed

 

What to Be Aware Of 

This small price increase may go unnoticed by your customers the first time, but don't keep on doing it and saying nothing. As consumers, we've all noticed those shops that constantly add a little bit on to their prices. If it goes to extremes, in the end, we go somewhere else to shop!

If it looks like a strategy that can work for you, make a feature of it and announce it to customers like:

"Our prices have only risen 1% this year/quarter compared to 5% with the competition/the rate of inflation!"

What are some of your ideas? Let me know in the comment box below.

 

Geoff Vautier is an 80-20 guru and pricing specialist.  He successfully helps businesses of all sizes to find ways to increase their profits and grow.

“Boost your profit: Understand, and charge for, the value you provide”

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