Updated April 29, 2024
Look, no one knows the price you pay but you.
When you selectively raise the price of your most popular items to add to your bottom line, you'll be able to continue in business. When you don't, you'll be gone.
Many owners or managers have never taken a pricing course, so they tend to mark up their products less than they should. I met a guy at a recent speech who sheepishly admitted he purchased an item at $20 and priced it at $25.
Your merchandise should be marked up enough extra to make your business profitable. That used to be double or keystone. With online retailers sometimes selling below the cost you can buy, there is enormous pressure to keep your prices reasonable.
That said...
You also have to consider the value you provide to the customer and charge what you think the market could afford, not necessarily what you would pay because you know what the item cost you.
There is a hidden risk to increasing your prices, and it doesn't come from consumers...
It's from your disgruntled staff. The polite ones who don't say anything to your face but tell customers behind your back, "We just had to raise prices."
They might even inform customers where they can get it for cheaper because they have price sensitivity. Or even worse, "I buy all my stuff from Amazon. It's cheaper.".
Don't you think that could be your staff?
Think again.
1. Educate your employees on what costs make up your pricing structure. Point out their salaries and benefits. Point out shipping costs. Point out as much as possible to show costs rise and why you must raise prices. Reveal no magic genie makes up the difference. (It helps if you don't drive the newest model BMW to work daily—just sayin'...).
2. Do a category report. Look for the category leaders. They can most effectively move your profitability.
3. Do an item report. Look for the faster-moving items you can selectively raise your prices on. When I was with the coffee franchise, we increased bagels instead of the entire bakery department. Not because bagel costs alone had risen, but they were the best-sellers and could most help balance increased costs for the business, not the item.
4. Decide how much you want to maintain your profit margins. You could raise items under $10 by a dollar, and no one would probably notice. Once a rate increase crosses from $9.99 over $10, though, current customers notice, so be careful with that price point. Likewise, the $19.99 crosses into $20, and all the $x9 ($29, $39, etc.) cross into the next level. Psychologically, customers "pause" if they want to spend over $20, $50, or $100.
5. Monitor your sales. If you've made your selective price increases right, everything will continue moving upward, and your profitability will also increase. Remember, you don't want to spend more just because you made more.
Increasing prices was almost a daily routine if you've ever worked in a larger retailer. You would physically remove the tags from the products and re-price them to the new retail price. This was done because the retailer understood they would have to pay more when they returned to the vendor, so they wanted to proactively price their existing merchandise to help pay for the new. This "float" between what they previously paid and what they would pay in the future helped make them profitable.
If you've only owned your shop, you may change prices when you get a new order. The thought is it is too much work to change them, and price hikes "wouldn't be fair" as that wasn't the price you purchased the items for previously. But managing your price increases is as important as managing your clearance items - you want to maximize profitability as easily and simply as possible. Being more aggressive with raising your prices - especially now that it is often simply updating a shelf tag and computer database - is being a smart retailer.
See also, Retail Training To Sell The More Expensive Item
In Sum
If one or two existing customers regularly purchase an item from you, such as ice cream, you might have them say something. If so, say something to the effect in a sign or in person, "Have you noticed the increase in milk? That has increased our costs and forced us to increase our prices. Thanks for shopping with us."
The minimum wage and tariffs on China have increased, and other factors are pushing the average retail profit margin down. Your products and services support you in living the life you want to lead and staying open for your customers.
To be a smart merchant, you must understand why you must raise your prices selectively to continue offering your customers choices.
You have to sell merchandise to get a higher merchandise turnover. Check out my online retail sales training at SalesRX.com below.