Want to Boost Your Business Sales?
How adjusting what customers pay can lead to a company turnaround.
Sometimes the most crucial lessons in entrepreneurship come from the simplest ventures. Mike Moyer got his start in business selling T-shirts in college. He sold a quality product, but didn’t earn a profit until he discovered just how important it is to get his pricing right. The key to his company’s resurgence was to raise his prices.
“The price increase changed the perception of the product and my ability to deliver a better service as well,” says Moyer, now a serial entrepreneur, as well as an author and teacher focusing on business topics.
He started his company, Banana Graphics, as a student at the University of Kansas in the 1990s. He tried to stand out among intense competition in the T-shirt market by offering a better shirt with original, multicolor designs, but soon found that his business expenses were more than his company’s revenues.
Eventually, he tried a drastically different tactic for turning around the company, doubling the prices from $6 to $12. “I didn’t believe my work was a commodity,” he says.
When he started to compete at a higher price point, he more than tripled his revenue within months. “I made more money, my order size went up, every customer after that was a repeat customer,” says Moyer.
Many business owners believe that raising prices may turn away their existing customers, and some shoppers do make their purchasing decisions based on price. By definition, however, they are not loyal customers, and in order to retain them, businesses enter a race to the bottom when pricing services and products, curtailing profits and branding themselves as an interchangeable commodity.
Instead, Moyer actually found that his client loyalty increased dramatically once he raised prices. This is due to the fact that people were choosing his shirts because they liked them, not because they were the cheapest. “It puts you in a different emotional state with your customer,” he says.
Pricing products correctly can also help provide the capital influx to continue growing your business. Moyer used his increased cash flow to make investments in automation and printing to further advance his company’s revitalization.
Ultimately, he reached nearly $1 million in revenue before he sold the business. For business owners seeking to turn their business around through pricing, Moyer offers the following three tips:
1. Let go of the belief that you must be a low-cost provider.
2. Create a higher quality product to justify a higher cost.
3. Bundle products together to give your offerings a competitive edge.
The big lesson for entrepreneurs? The best pricing is not always the cheapest, and a shift in what customers pay can lead to increased sales and bigger profits.
Want to learn more savvy business strategies? Take a look at our business resource center. And, one of the smartest business decisions you can make is being proactive about protection. Connect with an agent today to learn about customized coverage for your business.