This month’s article on cash flow management for entrepreneurs and small business owners provides some methods of boosting cash flow by increasing sales whilst raising prices.
This is the eleventh part in our ongoing series on cash flow management, you can read the previous articles here:
- Part One: Cash Flow Basics
- Part Two: Failure to Plan is Planning to Fail
- Part Three: Those Who Shout Loudest Get Paid First
- Part Four: Must Have or Lust Have
- Part Five: Working Capital – Make it Work for You
- Part Six: Shelter Your Assets
- Part Seven: You’ve Got to Innovate to Accumulate
- Part Eight: Treat Your Suppliers Like a Bank
- Part Nine: Take Stock of the Situation
- Part Ten: Balance the Bank
Part Eleven: Price to Sell
The chapter title is a little misleading, we’re actually going to look at how you can price your products and services to boost cash flow. So instead of showing you how you can achieve a positive cash flow by dropping your prices, we’re going to show you how you can increase sales whilst raising your prices. Sound good? Let’s go.
Boosting your sales is one of the key ways of improving your cash flow. While you may incur additional overheads, such as materials, staff, and storage costs, you could make a tidy profit if you price it right. But how can you achieve this? By widening your current customer base, by branching out into new products, services, and markets.
When deciding which additional products and services to sell, you need to think laterally. Consider the need you satisfy for your customers and then list the other things they might want or need. Or think of ways that you could package your offering for different markets, e.g. a budget-friendly, ‘do-it-yourself’ version, such as a digital download or online course.
However you choose to expand your reach, make sure you price your products and services right and you’ll be on track to achieve a positive cash flow.
Are you currently offering discounts on some products, or for new customers? The time has come to remove those discounts and start charging what you’re worth.
Reducing discounts is a no brainer when you want to bring in more money, especially if you offered a reduction for a fixed term and never got around to removing it when the period ended.
Just be sure to warn your customers well in advance before any fee increase comes into effect. As a business owner with cash flow considerations yourself, you know just how challenging it can be to manage your money when prices suddenly rise without warning.
Be Aware of Price Points
If you never increase your prices, eventually you’ll be making a loss. Inflation will eat up any profit until you can no longer afford to operate. If you do increase your prices, there will always be a few clients who choose to leave rather than pay more, and others who will argue for a discount or to freeze their fees for the next year or two. It’s up to you whether you agree to their terms, but it’s worth weighing your options and making the decision based on cold, hard facts, rather than any sort of sentimentality.
If they’ve been a good client for many years, always pay their bills on time and never give you or your staff any trouble, then it may be worth being a bit more lenient. You’ll benefit in the long run from keeping your best customers happy.
It may sound counterintuitive, but in turbulent times the quickest and easiest way to increase your income is to put your prices up. You may be thinking everyone tightens the purse strings during an economic downturn, and reducing your prices would attract new customers as well as retaining your existing ones, but that would require more resources and increase your overheads (staff, materials, marketing spend), meaning you’re making even less profit per customer.
Raising your fees may mean some customers leave or cancel their subscription, and some prospects are deterred from purchasing, but the ones who do will likely be more affluent, more loyal, and more engaged, meaning it will be easier to upsell to them.
The first thing you need to do is work out how many customers you need in order to maintain a positive cash flow if you raise your fees. You can use your average fee per customer, or take a median; whatever works best for your particular client list. Now, work out how many customers you could afford to lose, on a sliding scale, as your prices increase. You’ll find your sweet spot wherever you minimise client loss and maximise your average fees.
The next part in our cash flow management series, Plan Your Escape Route, will help you to prepare your business for your grand exit.
Don’t want to wait? Click here to get our guide, Happiness is a Positive Cash Flow and read all our tips and advice for achieving and maintaining a positive cash flow.
Get in touch to discuss your individual circumstances and get some independent, impartial advice on your business’s financial health.