Unbundling To Offset Costs
Now is not the time for a small business to increase prices as customers already are feeling the effects of a sour economy, but "unbundling" may be one way to increase profits without directly increasing prices.
Pauline Leitch, director of the Business Finance Center at the Community Business Partnership in Springfield, Va., said that raising prices now could mean a loss in sales, but small firms need to find ways to offset their own rising costs, due to higher prices of fuel and other materials.
She suggests that businesses increase their profit margin by unbundling, or separating, as many expenses as you can and then charge accordingly. "Provide an estimate and charge separately for each service that will be provided," she said. "This works in two ways - it helps to increase margins while making price comparisons more difficult."
Leitch cites the airline industry as one of the best examples of unbundling. Airlines recently began charging additional fees for an exit row seat or a meal on board, for example. Airlines are also charging to check luggage as a tactic to cover high-flying fuel costs.
She suggests that small firms should research how they might be able to unbundle some of their products or services that are currently include in their total costs. For example, a Web hosting firm that traditionally has bundled together the cost of creating a Web site, business cards and letterhead for a client, might want to think about segmenting those costs, Leitch said.
"For a company that builds fences, having gates in an overall price is generally inclusive," said Leitch. "But a company may want to charge a bit extra for a gate or if someone wants more customized tops for the posts. You have to be clever about it." A business can then itemize the costs for the customer to detail just how the final price was reached.
She added that it's not going to be smart for a small cleaning firm to suddenly start charging an existing client $100 when they've previously charged $80. However, if a client wants to start using organic cleaning products, which can be more expensive, it's fair to charge a bit more.
By Sharon McLoone |
July 7, 2008; 10:40 AM ET
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