If you are considering raising your prices, then the question quickly becomes, how? How do you raise your overall prices without losing customers, or making them upset or angry? Many businesses put off price increases for so long, they can never get them to a profitable level, damaging their ability to remain viable.
Raising prices can get tricky; no customer in their right mind will volunteer to pay more for a service or product than what you ask them to. Let’s assume that you’ve done your market research with your customers, and that many of them have made comments such as “the price was really reasonable” or “it was a great value!” or “it was really worth it,” instead of opposite remarks such as, “what a rip off!” or “they really gouged me.” Good research and a hard look at your bottom line should both be made. Not to say that if you’re profitable you shouldn’t raise prices, you can always use the money to expand and reach the next level.
That in mind, there are some good techniques you should consider when planning to rise prices:
- Give lots of lead time. If you have regular customers, especially if they are business customers who buy repeatedly from you, or use your service on a regular basis (e.g. someone that pays every month for a piano lesson) then try to give them 3 – 6 months lead time, and let them know what the amount will be. If a contract is coming up for renewal, start discussing it well in advance of the expiry date so that there is no shock, resistance, or gap in the contract delivery.
- Give a good, honest rationale. There are many things you can point to when raising prices: increased costs of
labour, materials, cost of living, or enhancements to your services, or even great results achieved for your customers. You can also explain that you have not raised prices in x years and that in that time inflation has changed by % amount.
- Time it with a tangible improvement, whenever possible. If you are rebranding your company, setting up a website, hiring new staff, or enhancing your capabilities in any way, this can be announced at the same time as the price increase. This gives customers a feeling that they are getting more for their dollar and gives something tangible for the increase in price. It is of course very important to then ensure that those tangible improvements actually happen as planned, or your customers may push back, and rightfully so.
- Smaller chunks, more often. Be careful not to make dramatic increases in price to your existing customers all at once. It is better to edge up 2– 10% per year than sit on the same price for several years and discover that you really need a boost of 20% – 50% to stay in business.
- Conscientious communication. Use the communication channels that align with the level of importance you pay to your customer. If you are a critical supplier to your customer, or if they are spending a significant amount regularly, you may need to visit or call the customer personally and gently break them the news. If you have no ongoing contracts with a customer, for example, you’re a store where customers come in on an ad-hoc basis, you may not need to notify them at all. Always err on the side of two-way communication wherever possible. One-way communication such as letters or signs posted inside the business may be sufficient if plenty of advance notice is given (and we recommend sending more than one notice, as letters do get missed), but within the communication, you can invite customers to call you if they feel the price change will bring any hardship. Even if you have to make an exception for one or two customers, if the others do not complain, you can vault your business very much ahead by increasing your prices. If you’ve never published your pricing, and you have specific project prices or rates for each customer, you may not need to make any announcements at
all,and be raising prices on a customer-by-customer basis, depending on the profitability of each customer’s account. Just be sure to have clearrationale for each customer when you go in to explain the new price.
- Can it boost your business? Rather than think of a price increase as just a time when you’ll risk losing business, think of it as an opportunity. For example, “Prices are going up on January 1!” might induce more December purchases, and you could end up further ahead on both sides of the increase, one side for a volume bump, and the other side for a profit margin bump.
Remember that pricing is tied directly to the profitability of your business. Being able to raise it, and doing so with ethics, good communication and careful timing is the key to success.