Running a startup requires equal parts, grit, grind, and tenacity. Once you’ve established your place in the market, you might realize that you need to up-level your pricing to match. As your business matures, you’ll need more capital to keep up with costs, reflect your value, and grow. Knowing when to increase your markup as a startup may be challenging and present potential risks and unknowns. However, adjusting your price structure to reflect your value is critical for the long-term health of your business.
When to Increase Your Markup as a Startup
1. You Have a Strategic Growth Plan
Understanding when it’s time to increase your prices is directly linked to your financial management tactics. Utilizing accounting software can streamline this analysis, offering clear insights into your startup’s financial health. Analyze the impact of material costs, technology, inflation, talent, and taxes to clarify your needs. Collaborate across the organization to identify immediate and projected risks to profits.
When you calculate margin on your current offering, you know your profitability. Your profit margin can help inform where the money goes to support hiring, retention, and research. If your current strategy doesn’t support your strategic growth plan, cost increases are necessary. Ease internal and client concerns regarding price increases with transparent communication and vision for the future. If you anticipate a steep increase in pricing, consider how a graduated price adjustment can help manage client budget concerns.
2. Your Brand Reputation Carries Weight
There’s a reason why luxury brands can charge so much – they have established themselves as top-tier. Although excellent craftsmanship cannot be denied, not every luxury product is different from its competition. A branded ball cap from a luxury handbag brand commands a higher price simply because of the name.
If your brand has clout in the market, a price structure that matches your reputation is common sense. When your brand equity rises, customers will associate your offer with quality, cutting-edge technology, and innovation. Established brands may command higher markups because of market share, but newcomers can confidently charge based on innovation and differentiation.
3. You’ve Got a Loyal Client Base
Earning loyal clients is a win in any industry especially for startups. Customer loyalty is confirmation that what your startup has to offer is needed and valued. When customers choose you for reasons beyond price, it means that you’re making an impact. Work with your sales team to get a pulse on customer loyalty, concerns, and future needs. This can help you align any pricing adjustment announcements with what matters most to your loyal clients.
If you’ve earned consistent client renewals with little re-engagement effort, it’s a good sign that price adjustments won’t elicit cancellations. Communicate the reason behind any price increases, sharing what it will help you achieve for your clients moving forward. Whether you’re investing in additional technology, staff, or innovation, convey what’s in it for your loyal clients. Align any improvements based on their feedback like faster or more personalized support.
4. Your Competitors Are Charging More For Less
When you find out that you’ve been cheating yourself out of higher margins, it hurts. However, entering the market at a lower price as a startup is often a smart strategy. By making the barrier of entry lower for new clients to explore your offer, you’ve essentially extended a discount. Now, as you’ve established a solid reputation, it’s reasonable to increase prices comparable, to or even more than your competitors.
When you increase your prices, ensure it’s clear that what you’re offering is better than what clients can get elsewhere. Without this clarity, your clients may be tempted to shop around and switch, especially if price is a primary driver. Manage client retention by grandfathering them in on certain prices within your menu. By locking them into their early-adopter pricing, you can improve retention rates while increasing profitability.
5. You Operate in a Niche Market
Oftentimes, the most money is available in the outskirts of mainstream business. When there are hundreds of options to choose from, it’s difficult to differentiate between brands. However, if you operate in a niche market, it’s easier to convey your value and higher price point.
Client expectations may be high for their industry, especially in the luxury and high-technology spaces. Premium industries often have a higher tolerance for high prices, even expecting them and aligning them with quality. If your long-term plans include capitalizing on this market share, align your pricing strategy with exclusivity as a factor. The fewer brands that can do what you do, and with precision, the higher the price point you can command.
Stop Undervaluing Your Offer
Command the value that your brand delivers. When your price structure reflects your value, you’re growing and leading a sustainable business. Complement your adjusted price structure with continued vigilance on cost, competitor pricing, and growth strategy. When you do, you can establish a long-term plan for growth and future pricing adjustments for your healthy startup.
