The power of price increases There are several ways that businesses can enhance revenue, profitability and overall value. One powerful, and sometimes overlooked way, is through price increases. These require a detailed impact analysis across the business and careful consideration of the risks, including the potential loss of customers that are unwilling to accept higher prices. If done correctly however, the benefits will most certainly outweigh the costs. Here’s a brief illustration to convey the power of price increases: Say your business generates $10M of sales and a 10% profit margin, resulting in a $1M profit. Assuming all else is equal, just a 1% price increase would result in a 10% increase in profit. That $100K in additional revenue would flow straight down to the bottom-line, bringing profits to $1.1M (10% higher than prior year)! Now let’s say the business can be sold for a 5x multiple on earnings. That would mean the 1% price increase that resulted in $100K of additional profit, increased the value of the business by $500K! Of course, this is simply an illustration, and the numbers will look very different for every business, but the point remains that pricing can have a powerful magnifying effect on the value of your business. Send me a DM if you're interested in learning more about how a fractional CFO can help your business achieve its goals. #business #management #cfo #cfohive #fractionalcfo #pricing #revenue #profit #value
David Ritchie, CPA, CA’s Post
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