Announcing a price increase might seem like tricky waters, but it doesn’t have to mean a dip in customer loyalty. With the constant ebb and flow of today’s economic tides, price adjustments are not only expected but often necessary.
In this article, we’ll chart the course for when to consider adjusting your pricing and how to smoothly communicate these changes to your cherished clients, ensuring everyone stays aboard.
When Should a Small Business Raise 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:*
1. You’re not making a profit.
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.
2. Your competitors’ rates are higher.
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.
3. Your business is in demand.
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.
4. You have a unique offering.
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.
5. You’re upgrading your offerings.
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.
6. Your qualifications have improved.
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.
7. You’re due for an increase.
Haven’t raised your prices in a while — or ever? It might be time. 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.
Things to Consider Before You Raise Your Prices
There are many reasons why you may need to raise your prices, 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.
Tips on How to Announce a Price Increase
If you’ve decided to post a price increase notice, 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.
Here are 8 tips on how to announce a price increase to customers:
1. Be transparent.
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.
2. Contact your customers directly.
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.
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. Be polite and genuine, and thank your customers for their understanding and continued patronage.
3. Give them advance notice.
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.
4. Provide them with options.
Let’s face it: 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, consider letting 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.
5. Make sure your staff is informed.
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.
6. Update your materials.
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.
7. Be confident.
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.
8. Answer their questions.
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.
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Charge Ahead
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. Looking for help with other aspects of your business? Our online Resource Center is filled with tools, tips, and guides to help you manage and grow your business. Here are a few we think you might like: