How can I increase my profits?

July 11, 2001


Date:  Wed, 18 Oct 2000
From:  Kerry

I want to increase my profits do I increase my hourly quotation fees or decrease my fees? Please explain the possible options to increase profits.

Answer

Date:  04 Dec, 2000

Hello Kerry,

Increase your profits by reducing your cost per product without reducing your prices. If you can't do that, you might consider increasing your hourly rates.

Before you do, however, think about how you are positioning your services in the market. If your clients work with your because of your low rates, they may not tolerate a rate increase. You don't want to lose clients!

Reducing your rates will not increase your profits. In most cases, when a business reduces its sales prices, it's hard to build up enough volume to make up for the reduced profits. The main reason to do it is you have an operational advantage over your competitors.

Sometimes those advantages are a delusion.

A temporary reduction may bring in more clients, but if you do it permanently, you could find yourself in a costly "price war" with your competition. I think a better strategy would be to increase your promotion activities. See our Better Business Ideas for some ideas.

Obviously, you can't offer the original IBM PC for $6,000 against today's competition.

It's best to seek a competitive situation where it's "easier to win," through offering a product or service that's highly valued to a highly-defined marketplace where there isn't much competition or you are viewed as the superior choice.

Good luck!

Mike Gray

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