Today, inflation is causing prices to rise on everyday products and services. Like most people, you’ve probably done a double-take at the gas station in recent months. Maybe even a triple-take.
According to the U.S. Bureau of Labor Statistics, inflation rose by 7.9% through February 2022 — the fastest pace of annual inflation in 40 years.
What does this mean for your small business?
Well, you may be contemplating the inevitable — announcing a price increase to customers.
Since the pandemic began, 82% of small business owners have had to increase the prices on their products or services due to inflation and supply chain shortages in the U.S.
Announcing a price increase to your customers can be daunting and uncomfortable. You may have concerns about scaring customers away and losing them to competitors.
While no one likes price increases, most customers expect them during times of financial uncertainty. These days, raising prices is just a part of doing business. With the right strategies in place, you won’t have to worry about alienating your customers.
In this article, we'll talk about when to consider raising prices and how to announce a price increase to clients without losing them in the process.
Let’s get started.
First, let’s acknowledge that it is not business as usual. Today’s escalating costs are affecting everything from gas and food to furniture and electronics. And it seems like consumer sticker shock is going to stick around.
As a small business owner, you may be worried about the current rise in inflation and its effect on your bottom line.
You’re not alone.
Inflation has become one of the main concerns of small business owners, and price increases have become the way to address it. According to a recent survey conducted by Goldman Sachs, 88% of respondents say inflationary pressures on their business have worsened since January.
Like many business owners, you may be concerned that your higher prices will drive customers away. But that’s not always the case. Many good customers will likely stick with you through minor price increases, especially if they know you will continue to provide a high level of customer service.
So how do you know when it’s time to raise your prices?
You may be wondering if your small business can get by without increasing prices. It’s possible. But in many cases, raising prices may be unavoidable if you want to keep your doors open.
Here are 7 signs that it may be time for a price increase:
If you're struggling to keep up with your growing business expenses, it may be time to raise your prices. Monitor your budget and costs to see where you’re falling short. Then decide if a modest price increase will help offset the difference. If not, you may need to evaluate your expenses instead of your prices.
One way to get a gut check on your pricing is to research your competitors to ensure that you are not undercharging your customers. If your prices are lower than the competition, you may want to look at raising your prices. Lower rates may attract customers in the short term, but it may affect your reputation in the long run. Look at it this way — you probably don’t want to be known as the cheapest business in town.
A booming business may be a sign that it’s time to raise your rates. When your services are in demand, customers are likely to be more receptive to a price increase. And if your business is growing, you need more money to invest in it. Increasing your prices can give you the financial boost to hire employees or expand your operations.
Does your small business offer something unique or hard to come by? Your premium offering may warrant a higher price point. If you have something that stands out against the competition, make sure you price accordingly. Factor in the added value you bring to your customers, whether it’s a convenient location or personalized service.
Your customers will notice when you add value to your services — such as faster turnaround time or a better online purchase experience. If your business is in the midst of improving your customers’ experience, it might be an excellent time to raise your prices. Many customers are willing to pay a little more for a better service experience.
Has your experience or education changed since you started your business? If you’ve earned a master’s degree or a certification in your field, you may now have additional credentials that could justify a price increase. Let your customers know that you’re bringing greater expertise to your work so they understand that your price structure matches your new skill level.
Haven’t raised your prices in a while — or ever? It might be time. As a standard practice, many business owners increase their rates once a year. Think of it as an annual raise for your business. If you haven’t increased your prices in the last year or two, you might want to evaluate your market and the competition to see if the time is right.
Small businesses increase their prices to adjust to the market, stay competitive, and make a profit. If you’re apprehensive about raising your rates, there are ways you can test the waters before jumping in.
There are many reasons why you may need to raise your prices in today’s market, but your business doesn’t necessarily have to be in crisis mode to justify a price increase.
Many businesses raise prices during periods of growth or when they offer new products or service enhancements.
Let’s say you recently updated your cafe with more comfortable seating and a better Wi-Fi connection. Or maybe you redesigned your website, making it easier for customers to navigate it and place orders.
Upgrading the quality of your product or service demonstrates value. If you can increase the perceived value of your service or product, you may have an easier time getting your customers on board with a rate increase.
Different pricing strategies are another way to move the dial on pricing. This may involve bundling higher-margin products and services to create higher-priced packages.
Begin by reviewing your current pricing structure and finding ways to reposition your products and services to make your business more profitable.
For example, if you operate a lawn care service, you may not want to increase your lawn mowing rates. Instead, you might consider creating a higher-priced bundle that includes other services, such as mulching or fertilizing.
Test your new offerings along with the old options, and see what happens immediately after making any change. If your new bundle becomes popular, you can begin to phase out the old pricing and lock in your new rates. If the new pricing strategy doesn’t work, you can try another one.
So how do you know when the price is right?
Finding the best price point involves many factors, including pinpointing your target customer, tracking how much competitors are charging, and understanding the relationship between quality and price.
If you don’t know where to begin, pricing software can help small businesses owners define, manage, and analyze the best pricing strategies for their products and services.
Raising prices may sound like a necessary evil, but your small business may have more to gain from a price increase than money alone.
A price increase can be a positive experience for your business when done right.
Are you ready to raise your small business’s prices? Read on for more tips on how to announce a price increase.
If you’ve decided to increase your prices, don’t approach the situation with a sense of dread. Embrace it. Customers are likely to understand that price increases are necessary for your business to succeed. And your loyal customers will want you to stay in business!
It’s important to think through your communication plan to find the best way to inform your customers of a price increase. Every business is unique, so the approach for an online store may be different from that of a local contractor.
If you run a small business with a few clients, inform them in person or over the phone. If you need to reach a large audience, send a personalized letter or email that includes everything they need to know.
Here are 10 tips on how to announce a price increase to customers.
Be clear and direct about your price increase. If your customers are fully informed regarding the changes, they are likely to be more understanding and willing to accept them. Transparency shows that you have nothing to hide, which may help strengthen your customers’ confidence in your business.
To be fully transparent, publish your price increases on your website and direct your customers to any new terms and conditions. Don’t pressure your customers to commit to anything. If you allow them to make an informed decision, they are more likely to remain loyal customers.
If your business is small enough to speak with your customers in person or by phone, you might want to. The announcement of a price increase can be surprising for customers, so it’s important to communicate the information directly and thoughtfully.
As mentioned before, depending on your type of business, an in-person conversation may be impossible. But that doesn’t mean you can’t provide personal attention when you announce your price increase.
An email or letter is acceptable for many customers, as long as it doesn’t begin with “Dear Customer.” Instead, use your customer’s name, and provide a way for them to reach out to you directly if they have any questions or concerns.
No one wants to be surprised by a price increase. If your customer hears about your increase from another customer or when they receive an invoice, they may not be too happy about it.
Give your customers enough time to come to terms with your new pricing. After all, they may have to adjust their budget or consider alternative options. The more advance notice you can give, the easier it will be for your customers to keep working with you.
Let’s face it, prices are skyrocketing on almost everything, and some customers simply won’t be able to pay more for your products or services. In this case, you may want to offer options for your loyal customers.
To retain customers, let them pay upfront at the current price. They won’t pay more, but you will get payments sooner. Another option is to redirect them to a lower-priced product or service that fits their budget. This is an excellent option for customers who may be paying for features or services they’re actually not using.
When you give your existing customers options, it shows that you’re focused on their needs and that you value them as customers.
If an employee were to charge a customer the wrong price, it would be a frustrating and embarrassing experience. Before announcing your new pricing structure, make sure your employees understand the new pricing.
And remember that price agreement with your loyal customer (see tip number 4)? Make sure your employees understand specific details about your offerings so there aren’t any miscommunications. You don’t want to put a customer in the awkward position of challenging a bill.
Make sure to update your marketing materials and presentations with the latest information about your pricing structure. Use your business website to highlight your new prices. In other words, don’t bury them at the bottom of a page. If you don’t have a price page on your website, now might be a good time to create one.
Price increases can be frustrating for customers, especially if they’ve been paying the same price for your product or service for years. Your customers are less likely to be wary of a price increase if they understand its rationale.
Provide customers with an explanation for the changes. You may have multiple reasons, such as higher material costs, new services or features, additional staff, or increased operating costs.
One thing you don’t want to do is imply that you’re chasing profits. This sends a negative message to your customers and may harm your business’s image. Keep the focus on customer satisfaction and the value your business will continue to deliver.
If your announcement sounds regretful, it may send a message that you’ve somehow failed. And that’s not the case. Raising your prices may be the best way for your business to succeed, so don’t apologize for it. Approach the topic with positivity.
Focus on the future of your small business. Reinforce that you are committed to providing the best value to your customers while you continue to grow. Justify the price increase and show how it will help meet your customers’ needs.
It goes without saying that you should thank your customers for their support and loyalty. A price increase is never easy news to deliver, but this allows you to reinforce the reasons behind your decision. Be polite and genuine, and thank your customers for their understanding and continued patronage.
No matter how well you communicate your price increases, there may be customers who have questions or want to know more. It may be that they are confused, concerned, or simply curious. Make sure your customers know that they can reach out to you with questions or concerns at any time.
If you find that many customers are confused by your announcement, it’s time to revisit your communication plan. Consult with one or two trusted customers to find out what’s lacking, and adjust your message accordingly.
The bottom line: Announcing price increases to customers may be uncomfortable, but it’s an inevitable part of business. Remember to focus more on the value you bring than the prices you charge. Price increase or not, your customer may realize it’s better to remain a loyal customer than to look elsewhere.
Many businesses are raising their prices to remain profitable and stay afloat. And you may need to do the same for your small business.
While raising prices is never easy, price increases often come with great rewards. Now that you know how to announce a price increase, it’s time to put a plan into action. Establish a new pricing strategy, give your customers time to adjust, and don’t look back.
I've always loved to write and have been lucky enough to make a career out of it. After many years in the corporate advertising world, I'm now a freelance writer—running my own show and contributing to Simply Business. Fun fact: I have three desks in my house, but I still do my best thinking walking in the woods.
Susan writes on a number of topics such as workplace safety, customer sales, and workers' compensation insurance.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
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