It’s no secret the costs of running a business are rising. If you’ve been absorbing inflation from your suppliers without considering what you’re charging for your own products and services, it could be time to consider a price rise.
We asked one of our experienced business advisers, Steve McLaren, about the right and wrong time to raise your prices, and what to keep in mind when setting your prices. Here are the insights he shared.
When is the right time for a price increase?
According to Steve, to determine if the time is right to increase your prices, ask yourself these questions:
- Are you struggling to keep up with demand?
- Have you recently received media coverage that has dramatically increased your customer base?
- Have your operating costs increased?
- Do you have, or are you trying to develop, an upscale image?
- Has it been a while since your last price increase?
“If the answer is yes to any of these questions, it's time to consider charging more for what you sell,” says Steve. “At some point, prices go up; that's just what they do. As long as your customers aren't caught off guard, or left to wonder whether they're getting increased value for their money, it can be done successfully.”
“With the right plan at the right time, a price increase can be a great way to add new revenue to your business and help maintain a healthy cash flow.”
Top tips to planning your price increase
“If you want to raise rates, but you are nervous about possible backlash from your customers, consider reframing what you are selling. That is, change the products and services to justify a price increase.”
Steve recommends you could try one of these strategies:
- Add free features. “For example, a dry cleaner might add free delivery, a copywriter might build in more rounds of revisions, and a financial adviser or ad agency might offer an annual account review and status report. As long as you can provide these additional services for less than the price increase, you could be better off financially.”
- Bundle your products and services. “By pairing particular products or services, you could charge a higher price. For example, a landscaper might add leaf raking to their grass-cutting services and then charge a premium for a comprehensive package. A hairstylist might bundle a haircut and treatment for a higher fee than just a haircut. As long as you increase total profits when you combine products and services, you will earn more money for your time.”
- Add new products and services. “When you roll out new offerings, take the opportunity to up your prices across the board. For example, a website designer might announce new graphic design and hosting services when adjusting all service rates. A cupcake bakery might announce the addition of cookies, cakes and breakfast pastries to the menu, and update cupcake prices at the same time.”
When the time is right to increase your prices, Steve recommends being 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. 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.”
When is the wrong time for a price increase?
“There are times when conditions are probably not optimal for raising prices,” says Steve. “These can include if you’ve recently lost a considerable number of customers, had quality issues which have caused customer complaints or you’ve just had a PR crisis.”
“In any of these cases, it's better to get your house in order before asking more from your customers.”
To learn more about pricing your products and services, attend our Pricing to Make a Profit workshop or read our articles on:
- 5 pricing mistakes and how to avoid
- How to tell your customers about your price rise
- How to cope with inflation
If you’d like to discuss pricing strategies or an issue facing your business, book an appointment with our free business advisory service.
You might also like to try our free range of tools for your business, including the cost of goods sold calculator.