If you haven't increased your prices in the last couple of years you may be wondering is this the right time? Your business costs would have increased quite a bit in the last couple of years so this is a good question and definitely something worth considering.

Its Diana here from HAVEC Accounting. I'll run you through some steps that may help you make that decision. Today I'll cover from the profitability of the products angle, or service angle. But there's other things that you'll need to consider, which I'll cover in future videos.

The first thing I recommend you do is look at the cost of each product or service that you sell to your customer. If you don't have that data available, you can work with your team or your accountant to get that information. So once you have that, you can compare the cost with your pricelist and calculate the profitability or the margin for each item or product or service that you sell. If the products are quite similar, the margin can be quite similar, but normally the margins are going to be quite different for each product especially if you have a wide range.

So what I suggest to do to not get overwhelmed is to split them in three categories to have the products that have a high margin, those that have a low margin, and everything else in the middle. When you look at this, you just bring it back to your business strategy. So each product has got a specific purpose in your business strategy. There will be some products that your business makes very well, they're great quality, very efficiently made, and your customer really values them and is prepared to pay a higher price, so those would be the higher margin products. Whereas the lower margin may be those that they may be more expensive to make, more time consuming, and your customer either doesn't value them, or they're not prepared to pay such a higher price, maybe because they can get it cheaper somewhere else.

So when you look at your margins that you've calculated and your buckets like with the high low or middle, you can check does that align with my business strategy or not? Especially looking at your low margin, if you have some products in there that you thought they should be at a higher margin, then there could be a problem with that particular product. You could have been maybe undercharging a product that your customer really values. Or it could be that your costs have blown up for some reason, so definitely something that needs to be investigated why this is happening and you may have to make some decisions around that, so that's one part.

And then, if your products are instead in the right buckets of high low and medium then the other consideration you can make is to check your margins that you've calculated against your target margin, that you have in your business strategy, and if you don't have a target margin now this is a good time to sift through and think about what that looks like. So if the margins you've calculated are similar, and they're very close, maybe what needs to be done is to just tweak the price slightly upwards to match your target margin. It could be that you're exceeding already your target and maybe you don't want to increase your prices. That would be great news. Or it could be in some cases that you're not meeting your target but you don't want to increase your prices for some reason and you may want to look instead at the cost if it's possible to decrease some of the cost to increase the margin on that specific product.

So these are some of the considerations you can make towards that decision of increasing your prices or not, and we've looked at the profitability angle but as I mentioned before there's a lot of other considerations to be made, especially in relation to your customer base, and I will talk about that in the next video.

So for now thank you so much for listening and I'll see you in the next video.