While inflation is beginning to ease, prices are still at an all-time high for both customers and businesses. You’ve likely experienced it yourself, whether from your suppliers, on critical business expenses or even your daily coffee. With recent price increases, you may be pondering a price increase of your own - but, by how much? When is the right time for a price increase? Also, how do you notify customers of a price increase? And most importantly, how do you raise prices without losing customers? Well, we're here to answer all these questions and set you up to handle a price increase.
When is the right time to raise prices?
First off, there’s no set time. Every industry and business is different, so it really depends on what’s going on within your field, and, most importantly, your own business. With this in mind, here are a few indicators to keep an eye on.
- Creeping Costs
This is probably the first and most important indicator. If you find costs have been creeping up and putting the squeeze on profit, it’s time to consider a price adjustment. Passing on the costs from your suppliers goes a long way in keeping you in the black and doing what you love.
- Market Watch
What’s going on around you? Take a glance at your location and industry to see what your competitors are up to. If they’re raising prices, it’s a sign you might need to as well. And if they're not? This doesn't mean you shouldn't, you'll just have to make sure you're delivering the best value.
- Keeping up with demand
Product or service flying off the shelves? That’s a good thing! But if you’re struggling to keep up with demand, it's worth bumping up the price. After all, you know your customers want what you have, and a small adjustment pads out your profit margin and covers costs, giving you room to grow and continue meeting demand.
How much should I raise prices?
There’s a balance to strike when considering a price increase, too high and you alienate your customers, too low and you’re undervaluing your time and product, as well as cutting into your profit margin. With this in mind, there are two things to consider, what the market is doing and what your current costs are. Both are crucial to striking this balance.
Market Research
See what your competitors are doing around you. Market research will keep you priced reasonably and within your customer's price range. If you choose to price above what your competitors are doing, make sure your services are reflective of this jump - particularly if there's a noticeable difference, as well as reinforce the value you offer compared to the competition.
Current Costs
Of course, you still need to consider current costs to ensure they're covered! That's the whole point of this after all. Your new price should cover all your current costs, ensure you're profit margin is secured, as well as include a buffer to make sure you don't need to raise prices in another 3 months' time.
How do I communicate a price increase?
Price increases aren't uncommon these days (we've all been on the receiving end of a price increase email, Disney+ we're looking at you), but there's definitely a right way to communicate a price increase. If you're wondering how to tell clients about it here are the 3 things you need to include.
- Be clear and concise
Don't beat around the bush, your customers need to know exactly how they're affected, lay out their current pricing and what their new pricing will be.
- Share the why
You don’t have to spill the inner workings of your business or life story, but letting your customers know why prices are changing helps smooth the way. A random price increase may not be out of the blue but can be a little jarring when it's not accompanied by any additional information.
- Reiterate value
When communicating the why and the what, it's crucial to reiterate what your customers are getting. Emphasise the value of your products or services and what they'll continue to get even at the new price point. If you're concerned about churn, now's a good time to point out your excellent customer service, unmatched reply times or innovative product.
Some other things to consider
While that’s the basics laid out for your price increase, here are a couple more things to help ease the way.
- Be flexible
If you’re a little wary about customer retention, consider offering temporary discounts or promotions to ease the transition. This will showcase your commitment to customer satisfaction and help them embrace the new change. Not to mention an opportunity to promote other products and services by wrapping them up into a deal or offering a month or two free.
- Small steps
Sometimes a series of small price increases are more easily accepted. Depending on your increase, a series of small steps create a smoother transition and are more palatable than one big hike, which can feel a little jarring.
- Test it out!
Put some feelers out there to see what the general feeling is. Increasing the price of a certain product or with a certain segment to get a handle on what and how your customers are feeling.
There ya go! Everything you need to handle a price increase the right way, if you're on the lookout for more tips about all things marketing and business management, be sure to check out our other blogs here.