This is a reprint from USA Today newspaper dated 7/6/2006.
Here is the link for the entire story page:
http://www.usatoday.com/money/smallbusiness/2006-07-05-small-prices-usat_x.htm
Sweet spot: Demand
To be sure, some small businesses are raising prices because of rising demand, rather than increases in overhead. In Raleigh, N.C., business owner Joe Bunn is boosting prices as much as 10% by summer's end for his wedding disc jockey and videotaping service.
And that's on top of a 10% increase in March, to $725, for his DJ package. Customers didn't blink an eye. "None whatsoever," he says. "It never slowed down."
Bunn says the wedding market is immune to economic pressures. "These brides and ultimately the grooms have this image of a perfect day in their head," he says. "One way or another, daddy's going to come up with the money."
Bunn's strategy is smart, says David Ramp, a counselor at the Small Business Development Center at the University of Alabama at Birmingham. "If you raise your prices and customers don't complain, you may have set your prices too low in the first place," he says.
Small firms should try to raise prices whenever they sense consumers won't push back. That increases profit margins and gives owners the ability to absorb future increases in business costs if demand slows.
"The smaller your margins, the quicker you are to pass those increases along," Ramp says.
Small companies can seldom compete on price alone because they don't have the volume of bigger competitors, Ramp says.
Still, small businesses in highly competitive markets — such as retailers squaring off against deep discounters — must always keep a laser focus on prices, Ramp says. "If you're on a low end, you're going to follow Wal-Mart."
Here is the link for the entire story page:
http://www.usatoday.com/money/smallbusiness/2006-07-05-small-prices-usat_x.htm
Sweet spot: Demand
To be sure, some small businesses are raising prices because of rising demand, rather than increases in overhead. In Raleigh, N.C., business owner Joe Bunn is boosting prices as much as 10% by summer's end for his wedding disc jockey and videotaping service.
And that's on top of a 10% increase in March, to $725, for his DJ package. Customers didn't blink an eye. "None whatsoever," he says. "It never slowed down."
Bunn says the wedding market is immune to economic pressures. "These brides and ultimately the grooms have this image of a perfect day in their head," he says. "One way or another, daddy's going to come up with the money."
Bunn's strategy is smart, says David Ramp, a counselor at the Small Business Development Center at the University of Alabama at Birmingham. "If you raise your prices and customers don't complain, you may have set your prices too low in the first place," he says.
Small firms should try to raise prices whenever they sense consumers won't push back. That increases profit margins and gives owners the ability to absorb future increases in business costs if demand slows.
"The smaller your margins, the quicker you are to pass those increases along," Ramp says.
Small companies can seldom compete on price alone because they don't have the volume of bigger competitors, Ramp says.
Still, small businesses in highly competitive markets — such as retailers squaring off against deep discounters — must always keep a laser focus on prices, Ramp says. "If you're on a low end, you're going to follow Wal-Mart."