Another interesting observation is that only 36 percent of the wholesales workrooms (to the trade only) raised prices annually or more often, while 53 percent of the retail-only businesses and 62 percent of those who were both retail and wholesale did so. The wholesale workrooms have some catching up to do and being too busy is not an excuse!
GRADUAL PRICE INCREASES
Annual price increases usually are necessary for a business to grow and thrive. If you increase productivity to exceed the rate of increase in overhead, then raising prices might not be necessary. But this would be difficult to do for a one- or two-person business that is already working to capacity.
Gradually raising prices regularly is far better for your customers than a sudden dramatic jump in prices. If you are selling retail, it is very easy to raise your prices a little bit even from job to job if a raise is in order. However, wholesale workrooms cannot do that unless they are doing all the estimating for their clients. Those workrooms that offer a price list to their decorator clients can sometimes raise their prices every six months, but usually annually is the most accepted practice.
If wholesale workrooms wait two years or more to raise prices then try to make up the difference for skipping those years in between, it becomes a dramatic increase for their clients. The designers/decorators will have a more difficult time passing on a high increase to their customers and they will be much more likely to complain to the workroom.
REASONS TO RAISE PRICES
1. Overhead goes up: If you have a home-based business, then your overhead is not likely to rise as much as if you rented a space, but it likely will rise some. Maybe the cost of your supplies won't change in a year, but there are many other overhead expenses that do change. For some businesses, the local license fee is based on volume of sales. Therefore, if your gross sales increased for the past year, your license fee may go up. Buying samples or equipment will raise your overhead and the latter will raise your property tax. And then there is insurance to consider.
In order to keep the percentage of your profit the same, you must proportionally raise your prices as your overhead goes up.
2. Employees need a raise: If you have employees, even if they are part-time, they expect at least a yearly raise. For full-time employees, the longer they are with your company, the more paid holidays, sick days and vacation days should be given to them. Good employees are hard to find and the more benefits you can offer them, the more likely they are to stay.
I once had a workroom owner call me lamenting that her profit margin was dropping every year. I asked her if she gave her employees a raise every year. She said, "Yes." I asked her if she raised prices every year. She said, "No." She didn't understand the relationship between her costs and her selling price.
3. Owner needs a raise: As the owner of your company you wear numerous hats of responsibility and deserve a raise! Just having another year of experience is worth a raise, but if you have educated yourself beyond your hands-on experience—attended schools, trade shows or seminars; participated in e-mail lists; read books; or any other means of elevating your knowledge—then you deserve a higher rate of pay.
For comparison's sake, let's look at some examples of raises. I just read in the paper that American Airlines pilots got a three percent raise. I also have a friend who works for a major corporation, who just got an 8.5 percent raise due to her outstanding performance. That much of a raise is virtually unheard of in that particular company. Because of her performance, she is also expected to get another raise in six months.
If you were an employee, how do you think your boss would rate your performance? If your boss wants to keep you, how many raises do you think you deserve?
CASE IN POINT
Should you increase prices every year or every two or three years?
Most workrooms have such an extensive price list that it is very time consuming to change prices. It is especially true if you take the time you should to evaluate each item you offer for the time it takes to produce. If you don't have time to do the latter, then an across-the-board increase is perfectly acceptable and 10 percent is a very acceptable figure for an annual increase. If you know how to use Excel spreadsheet software, you can do an automatic, standard increase for all prices automatically.
If you do not raise prices annually, you will lose money! Period! To make it easier, assume that for each consecutive year, your basic volume for gross sales remains unchanged at $80,000. The only thing that will change will be when you increase prices. Also assume that there will be a 10 percent across-the-board raise each year.
By not raising prices annually, Case 2 lost $19,280 and Case 1 lost $27,280 over three years! Most workrooms say they don't have time to raise prices. Do you still think you don't have time?
Kitty Stein, WCAA, is a 20-year veteran of the drapery workroom field, having owned and operated her own business for 18 years and having taught classes on window treatment construction. Until 1990, Stein and a partner owned a workroom with nine employees. She since has opened her own smaller workroom, Workroom Concepts, that has just one employee. She also does workroom consulting, seminar speaking and is the author of Order in the Workroom available through Draperies & Window Coverings. Case #1:
Raise prices 30 percent every three years $80,000 x .30 = $24,000
$80,000 + $24,000 = $104,000 gross sales in year three with raise.
Sales for three years:
$80,000 (year 1) + $80,000 (year 2) + $104,000 (year 3) = $264,000 gross sales.Case #2:
Raise prices 20 percent every two years $80,000 x .20 = $16,000
$80,000 + $16,000 = $96,000 gross sales in year two with raise.
Sales of for three years:
$80,000 (year 1) + $96,000 (year 2) + $96,000 (year 3) = $272,000 gross sales.Case # 3:
Raise prices 10 percent every two years $80,000 x .10 = $8,000
$80,000 + $8,000 = $88,000 in first year with raise.
$88,000 x .10 = $8,800
$88,000 + $8,800 = $96,800 in year two with raise.
$96,800 x .10 = $9,680
$96,800 + $9,680 = $106,480 in year three with raise.
Sales for three years:
$88,000 (year 1) + $96,800 (year 2) + $106,480 (year 3) = $291,280 gross sales.