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Pricing Adjustments – Is Now the Time to Raise Prices?

| March 19, 2022, 01:00 PM

Radish price tag

Photo by Mark Stebnicki from Pexels

Quick question for you business owners – when was the last time you raised your prices? I know, I know, COVID put a shock to the system. But before that, did you raise your prices in 2019? How about in 2018?

If not, why not?

Look, as I have touched on in other articles for Eye on Annapolis, inflation numbers are crazy right now. But inflation is an annual occurrence. And part of that is because if prices did not go up, the entire economy would crumble as people would hold off on purchasing products today for better deals tomorrow. No spending means no jobs. No jobs means chaos, mass hysteria, and implosion.

So while we don’t want a 7% inflation anymore, prices on all goods and services will typically rise between 2% and 4% a year on average.

My question is, are you adjusting your pricing, on at least an annual basis, to factor in that 2%?

Sometimes, it gets factored in automatically. I am working with a floor covering business that adds a percentage mark up on all their products. So, as their Costs of Good Sold rise, so do their prices. If you are at least doing that, then you are somewhat covered. However, I know a lot of you are not even doing that.

Take it From Those Who Have Been There

Do not be afraid to raise your prices. I did a seminar in October 2021 with Allan Hirsh of Allan Hirsh Advisors, and that was his number one tip for businesses owners.

Looking for a second source? How about Adam Coffey, who wrote The Private Equity Playbook. In it, he talks about 3 ways owners can increase profits – organic growth, margin expansion, and growth through mergers and acquisitions. If you’re focusing on organic growth, which is identified as “increasing output and enhancing sales” according to Investopedia, then you either need to raise your prices or sell more products. And if your suppliers are raising their prices, and you are not, then you need to sell EVEN MORE products just to break even.

Liquified Creative Annapolis

Why Raise Prices?

This is especially important if selling your business is your endgame. We based your business evaluation on the last three full years of verifiable income – using either tax returns or Profit and Loss statements as a guide. Businesses that sell better show growth during that time. If profits are flat or declining because your Costs of Good Sold are increasing, that becomes a caution flag for buyers.

Nobody likes raising their prices. Most owners get into business to make a profit, but more importantly, add value to the community. They care for their customers and want to do right by them. However, if you treat them well and provide a solid product/experience, customers across all industries have shown they will return if you adjust your prices modestly year over year.

Closing the Dangling Threads

I noted above that there are three ways to increase your profits – but left you hanging with the other two. The other two are margin expansions and growth through acquisition. Margin expansions are often harder to find because they require you to look for and identify cost reductions in your processes, suppliers, and technologies.

And if you are considering growth through acquisition, well, that is too much to get into here. When you have some time, I recommend taking a look at my article about when it makes sense to acquire a business, checking out our list of businesses currently for sale in Anne Arundel County to see if there is a potential fit, and signing up for our free Buyer Match program so you can be alerted the minute a business of interest hits the market in the future.

Category: Businesses, Events, LIFE IN THE AREA, Local News, NEWS, Post To FB

About the Author - Steve Palmer

Steve Palmer is the Principal Business Broker with Transworld Business Advisors of Annapolis, and currently lives with his wife, Erin, and daughter Isla Mae, in Harwood, MD. Transworld is the largest business brokerage franchise in the world and has conducted over 10,000 business sale transactions across dozens of industry verticals since its founding in 1979. If you are, or have ever considered, selling or buying a business, please reach out to Steve by email at [email protected] or by call or text at (410) 842-6063.

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