Justifications to (and not to) Revisit Your Pricing Model

close-view-of-mans-hands-with-a-calculator-glasses-and-papers-on-a-deskBefore adjusting the prices of your services or products, consider these justifications to (and not to) revisit your pricing model.

Your Strategic Environment is Changing If you notice that the strategic environment is undergoing a change, then it might make sense to consider a pricing adjustment. There are still many considerations to make before changing pricing. Why is the market demanding a different price? Are there minimum expectations that your competitors are providing that you aren’t? Has the government levied pricing restrictions?

Your Competition’s Strategy has Changed When Southwest entered the market place, their strategy caused major changes across the entire air transportation industry. If you notice a new competitor or even a new strategy by a competitor, you should first determine if it makes sense to try and compete with their pricing. Then, determine how you can add more value or leverage other add-on’s to justify your pricing. This is another way of revisiting your pricing model (without actually changing your prices)

Your Costs have Dramatically Changed Let’s face it, if you’re cost of goods sold dramatically increases and causes your product’s or service’s profitability to go down (or go away), you should revisit your pricing model. This doesn’t mean you should jump to the conclusion that your prices need to go up. In fact, there are 2 things you should do first. One is to consider if another vendor would help offset the cost increase. Another is to consider if the cost is relevant in the first place. Don’t just assume that since your cost of goods sold goes up, you need to increase your pricing.

You feel like it Just because you felt like it or it sounded like a good idea, adjusting your prices can cause substantial ripple effects that could cripple your business. We recommend doing a marketing analysis or customer survey to determine the reasons customers choose you over your competitors. Wouldn’t you want to know how changing your pricing can impact your bottom line before you launch a sweeping adjustment?

Everyone else is doing it Just to be clear, I’m not suggesting to never follow your competitors when they adjust pricing. Before calling your web designer to update your pricing, you may want to consider why everyone else is adjusting pricing. Are costs across the board increasing to an unsustainable level? If everyone is adjusting their pricing, you may want to consider using a PR firm to announce your new strategy or pricing model in an effort to differentiate yourself from the competition.

I want to expand To be clear: expanding is good. But before ratcheting up prices because you want to expand your business, consider your strategy and place in the environment in which you operate. When building a business, there are many ways of getting there. But know this: Your Strategy Should Align with Your Business Model. I wrote an article 5 Characteristics of Successful Smart Businesses in which we uncover some common characteristics of successful businesses.

Written by

Matthew Wilhelmi is a Business Consultant at Individual Advantages, the parent company of YourBizDr.Com. Matthew is an entrepreneurial minded professional who works well with complicated business strategies and excels in developing and implementing operational processes to achieve business goals.

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