The online tax advice platform for the self-employed, Declaring, has compiled a series of tips in a guide that can help this group to readjust the price of its products and services, in accordance with the increase in inflation, with the aim of minimizing its effect on the margin of its businesses.
In recent months, the different geopolitical and social events that have been taking place in the world have caused an extraordinary rise in inflation. This is a situation that has direct repercussions on the pockets of consumers, who could lose more than 15,000 million euros of purchasing power and, in particular, the self-employed, who will have lost, on average, 7% of your benefits at the end of the exercise.
Juanjo Traver, Declaring CRO, ensures that the price “It is the most impressive variable in a business, since an increase of just 1% has an impact on 11% more profits, well above the adjustment of fixed expenses, which improves profits by only 2.3%”. For this reason, in a situation like the current one, it seems clear that the self-employed should try to adjust their prices in order to cope with inflation.
What can freelancers do to adjust their prices?
- Analyze the impact of inflation on the business. It is essential that the self-employed make an exhaustive analysis of how inflation impacts their business. In this way, it will be easier to make the right decisions in each case. For example, perhaps inflation is 10% but for a computer scientist who always works at home it is 5%, and for a salesperson who has to travel by car, 25%.
- Redesign the pricing strategy. The increase in costs and prices in general should naturally lead the self-employed to consider an increase in the price of the products or services offered. However, those freelancers with a very little differentiated offer, or one that is highly conditioned by costs, will find themselves with the problem that the client will be unwilling to accept a price increase. For this reason, in situations like the current one, it is important to consider a change in the pricing strategy.
- Use the “perceived value” pyramid as a tool. The concept of perceived value has to do with providing products with a series of characteristics that go beyond those intrinsic to the product or service itself. It is, therefore, a pricing strategy that moves away from doing it by costs. Keep in mind that the price represents only 50% of the factors that push the buyer to make the decision, and that the emotions and feelings experienced by the customer are the factors that make the difference. In this way, one way to be able to increase the price of a product or service would be to offer the customer an extra value that does not have an excessive cost for the self-employed person.
- Segment potential customers. It is always important to avoid one-size-fits-all solutions, but in times of economic uncertainty, this is a particularly valuable strategy. To achieve this, it is best to divide the customers and be able to assign a specific price to each segment based on their needs and what they demand. In fact, the usefulness of this factor also lies in offering each customer segment a tailor-made product configuration or even a specific business model.
- Properly communicate prices. To be attractive and convey confidence to customers, it is essential to know how to tell them prices properly. In this sense, it is important to know that the relationship between the value delivered and the price is not linear. Some strategies to do this include using comparative anchors or avoiding uncertainty by making offers easy to understand and predict. Along these same lines, there are strategies based on the concepts of “Good – Better – Best”, where the central option is always the most beneficial, and which, according to different studies, is chosen by more than 70% of people.
- Calculate the fiscal margin. When specifying the price of a product, it is important to project the fiscal margin, calculating the percentage of benefits that will have to be paid to the Treasury when making the Income Statement. In addition, in a situation of inflation such as the one we are currently experiencing, it is important to pay attention to the macroeconomic forecasts that can be used to project different scenarios, which will help the self-employed to set a price range.
- Carry proper financial management. Good financial management is always essential, and even more so in these times. For this, it is important to have the necessary tools to analyze the business situation and assess where to put the resources, considering both risk and profitability.
“If you have a business whose profitability barely exceeds inflation, perhaps, instead of investing in the business by hiring staff or expanding facilities, it may be more profitable to invest in other financial products or other businesses.”, concludes Juanjo Traver.
