Date: Wed, 18 Oct 2000
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.
Date: 04 Dec, 2000
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, itís 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 canít offer the original IBM PC for $6,000 against todayís competition.
Itís best to seek a competitive situation where itís "easier to win," through offering a product or service thatís highly valued to a highly-defined marketplace where there isnít much competition or you are viewed as the superior choice.
For answers to more business questions and information about new tax developments, subscribe to our newsletter, Michael Gray, CPA's Tax & Business Insight!