How to raise prices and keep clients
Many club directors often have to face an issue whether to increase the prices on the services offered in their club or not. For even though the club has been operating for 2 years, the prices have remained the same! Same issue is faced by clubs that have been open for 5 years, too.
If you wonder how to raise prices on services but feel apprehensive that this will make some of your clients leave, then let’s look more closely into the matter and change your stand.
Let’s see what your profit within a certain time period depends on. Here are five marketing indicators that will help us do this.
1. The number of potential customers that are interested in your offer, within a certain time period (the number of those who lift their hands and say “I am interested in this”, so to speak).
2. Conversion rate of clients: the number of those who have become real clients out of the overall number of those who said “I am interested in this”.
3. Average purchase cost.
4. Transactions within a selected time period – the number of purchases.
If we multiply these indicators, we will get a formula for calculating profit. This formula gives a clear idea about where money comes from and how much we receive.
If you aim to double the takings (not percentage profit, but namely the takings), then each factor must be increased by 15%.
The easiest way to raise prices in a club.
The majority of businessmen only see one way of increasing profit: attract more clients. The remaining 4 indicators slip their attention. this is considering the fact that growing a base of clients is the most complicated and costly way – it involves marketing costs, advertising, PR actions, special offers and so on.
As evidence from practice suggests, the best way to increase takings is to increase profit. The first reason for this is that out of all the means listed above, only profit has a direct influence on takings (the remaining indicators have an indirect influence only). Second, this is the cheapest and easiest means of gaining extra income. When taken together, the other methods can bring bumper profit. Yet to carry them all out, one needs to make significant investments. Well, they say half of the money invested into advertising is wasted money. How will one know which half it is going to be… It is far more sensible to start with the easiest and nearly cost-free means. The profit that is gained can be used for carrying out the remaining ideas.
How to raise prices – increase profit.
There are two ways to increase a profit margin: either to cut on spending or to increase prices. The first solution involves significant impediments, for spending can be cut to a certain level only. As to prices, there is no maximum range.
So, we’ve arrived at the following: to increase profit, we must raise prices on goods.
Still, many entrepreneurs feel exasperated when they have to resort to this method!
Entrepreneurs are eager to fight for every consumer and protect them against the influence of competitors by fair means or foul. They are reluctant to vary prices which result in their clients leaving them. It's as clear as day that a company without customers goes bankrupt.
Yet you know that every cloud has a silver lining. Practice has shown that as soon as prices are increased, the most ‘difficult’ clients leave a company, similar to rats escaping a sinking vessel. These people are concerned about nothing but money. They keep asking for discounts, special conditions and gifts all the time. Cost is the only factor that determines their decision. So, if you ever increase your price, they will leave either in sombre silence or screaming angrily.
If so, let them go! You should not regret such a questionable loss for even a second, because their place will be taken up by more loyal clients, who will be glad to pay for the valuable services offered by your laser tag club.
Remember: it does not matter how high your price is as long as this price is fully justified.
We have looked into the most effective means of raising prices on goods. Now, let’s find out what profit this can give us.
What price increase is fraught with. Simple maths
Is raising prices really worth it? If you are concerned about this issue, then you must know that every day of putting it off you will lose money. You must increase prices and you should not delay this. Even if you lose some of your clients, it does not at all mean that you will lose profit.
Let’s view a simple example with simple numbers.
Supposedly, you sell a game bringing you 50% of profit. If you raise prices by 10% and lose 10% of your clients, you will come out winner! Do you find it strange? It's very real indeed.
Service cost price – 100 roubles (an example). 150 roubles with a surcharge. Net profit – 50 roubles.
You have 100 clients, each of them buys one item once a month. When we multiply 100 clients by 50 roubles profit, we will get 5000 roubles per month.
When you increase prices by 10%, your goods will cost 165 roubles (65 roubles net profit). Together with that, you will lose 10% of your clients (you have 90 clients left). If you multiply 90 clients by 65 roubles sales profit, you will get… 5850 roubles – this is 850 roubles more than last month, when your prices were lower and you had more clients!
Even if you lose 20% of you clients instead of 10%, still you will stand to gain! This is because if you multiply the remaining 80 clients by 65 roubles sales profit, you will get 5200 roubles – this is still 200 roubles over compared to your previous takings, before price increase.
Even if you bring prices up by 20% and lose 40% of your customers, your takings will go up by 2%.
Certainly, such situations are just possible outcomes. In reality, things may follow a different course (and this is what normally happens). Yet in real-life situations, the client losses that we have considered above are much exaggerated. These losses will actually be much smaller than you think, and accordingly, your profit will increase more significantly, than you expect.
The right approach to price increase
Well, the best and most effective price increase strategy is demonstrating increased value. As soon as potential customers get to see that by playing at your facility they can save or even make a lump sum, they will run to you themselves.
If you know how to demonstrate your value on the market, you need not feel apprehensive about the price. Jaguar and Bentley cars may serve as an excellent example of this. Though they are much less comfortable that Mercedes, their grandiose value is absolutely unfounded, and their actual price comes from the active and massive marketing manoeuvres.
Price increase tricks
• Cross out the price. Let’s say, you used to sell a product for 110 roubles and you want to sell it for 121 roubles. Make a price label for 150 roubles, cross out that price and put 121 roubles instead. This is an old trick, one of those that will stay relevant even in the age of robotics and nanotechnology. People used to have a false feeling of advantage from 'lower price’ 10 years ago, they have it now and will have it later. This will remain so until a new subject of Marketing Secrets and Tricks is introduced at schools. Even then, things will remain pretty much unchanged.
• Award bonuses – they are always effective, because customers feel quite certain that such unexpected gifts have good value. It’s always nice to receive unexpected gifts, even when they are the size of a cup and have the shape of a cup. Well, indeed, it’s a cup.
• Provide a warrantee! If you can offer a convenient, long-term transparent warrantee – then do it, for it will allow you to sell your products at higher prices. Being a seller, you are likely to know well the specifics of laser tag and its advantages over other products. Choose mid values and provide a warrantee that will make your competitors laugh, your customers exhilarated and you prosper.
• "Square” prices — are the ones that are not expressed in round numbers: 67 roubles, 113, 49 995… For an unclear reason, they are more effective than rounded prices. Yet one must experiment with them – test them. This is because some client categories feel more comfortable about a high price than a low one.
• An expensive set. People have gotten so much used to the idea that lunch boxes and any other sets of things are cheaper than a sum of separately taken elements, that making money on this is as easy as a pie. This can be especially easy when, again, prices are ‘square’: it costs 237 roubles to rent a tager, 59 roubles to rent camouflage. You can make the price of a set of these two 301 roubles instead of 296.
Now, to make a summary, try to answer this simple question: ‘What can price increase result in, if not in profit?’