There are 5 ways to grow your business – increase customers, get customers to buy more, increase the value of each transaction, increase prices or increase efficiency.
By far the quickest and easiest way, according to expert pricing accountant Peter Hill, is simply
to increase your prices. He issues a challenge to businesses – if you want to increase your profits in one, easy step, increase your prices by 5% immediately.
A quick example would be a conveyancing quote I recently had. We contacted three law firms to get a price on selling a field (sale transaction is less than £20k) and got quotes of £475, £400 and £200.
Thinking about it now – if the £200 quote had been £210 it still would have been the lowest price, and if I had been a bit distrustful of the low quote I would still have gone with the medium quote with a 5% increase at £420.
Applying this to our own business does not really work, because in recruitment most of our business is on a percentage basis and varies according to the salaries being paid, not the work put in. However to an hourly rate firm (ie a solicitors practice) this could make a big difference.
Assuming your firm (limited company) turned over £100k last year with £60k profits and paid corporation tax at 20% on the profits, you would have managed to make £48k after tax. If you increase your prices by 5% you would have turned over £105k, with £65k profits and made £52k after tax. The extra 5% price would have generated you £4k in net profit.
Not bad for just adjusting your prices slightly upwards.
The downside is of course the annoyed customer who wants to know why the price has just gone up. Peter Hill suggests that you should ignore them and concentrate instead on the vast majority of clients who are happy with the service and as a result will pay to stay.
Are you brave enough to try it? We are going to give it a go with one of our non-recruitment businesses. I’ll keep you posted with the results in 12 months time.
Jonathan Fagan is Managing Director of Ten-Percent Legal Recruitment and a non-practising Solicitor. Ten-Percent Legal Recruitment provides online Legal Recruitment for Solicitors, Legal Executives, Fee Earners, Support Staff, Managers and Paralegals. Visit our Website to search our Vacancy Database. Our Legal Careers Shop has eBooks on CV Writing for Lawyers, Legal Job Interview Guide, Interview Answers for Lawyers, NQ Career Guide, Guide to Finding Work Experience or a Training Contract and the Entrants Guide to the Legal Profession.