Understanding Margins and Increasing Prices

Higher Margins - By: Brad Sugars
Business Coaching Article | Ten Principles of Leadership

Every business owner needs to understand the concept of margins and increasing prices is a great way to achieve higher margins.

Understanding Margins:

Margins are what you make after ALL costs have been deducted. Therefore, any increase you make to margins is clean profit - and that’s got to be a good thing. In fact, profit is my favorite six-letter word. Yet despite the black and white advantages of increased margins, far too little time is spent analyzing ways of improving them.

The really exciting part is that the tiniest of improvements can equate to massive differences in your bank balance. By increasing margins by just five per cent, some businesses will experience profit increases equivalent to a 50 per cent rise in sales... sometimes even more.

Give me a "P", give me an "R", give me an "O", give me an "F", give me an "I", give me a "T": What does it spell? Margins! One last thing, this isn’t just about cost cutting, it’s far more exciting.

One of the best ways to boost margins is by increasing your prices.

Increase Your Margins/Prices:

Most business owners have more of a problem with a price rise than do their customers. This has to be the fastest and best way to jump your profitability. 95 percent of your customers won't even notice the rise and the 5 percent that do complain are the 5 percent that already complain. Remember, if you’re still too scared to increase your prices across the board, just increase the prices on the 80 percent of your products or services that are the slow sellers and leave the 20 percent of your fastest sellers til last.

Here are some useful hints and tips on increasing your prices:

  • Introduce increases right now.
  • Don’t draw attention to the rises, but if people inquire, explain the reason and then focus on the extra benefits.
  • Make it at least a 10% price rise.