Know what sucks? Selling your company, then watching the acquirer double the prices you were charging and realizing how much profit you missed AND how much more you could have sold your company for. Ouch.
Know what sucks more? Doing the same thing twice. I wish I could say I was making this up.
I felt terrible until talking with a friend of mine in the buyout business who said that a regular part of their buying strategy is to look for companies in which they can substantially raise prices. They buy a lot of companies. A McKinsey study estimated that 80-90% of prices are too low.
“But we can’t raise prices because _______”, said the vast majority of entrepreneurs – with the blank filled in by their fearful thought of the day. We will lose customers, our competitors will kill us, our loyal customers will never tolerate it, etc.
Even if you lose customers (and in my cases, we lost shockingly few), you are still much better off. An example: if you raise prices by 40% and lose 10% of customers, you are making more than 25% more. How long will you have to work to grow your company to make 25% more? Want to get that time back?
Don’t get me wrong, this isn’t all about taking home more cash. You will have more resources to put into making each customers’ experience that much better, more resources to put into hiring your next great employee who you can also afford to pay more. Premium pricing your product or service can create a better experience for your customers, your employees and you.
What are your experiences with pricing?