No, it’s not just you, it really does feel like groceries, bills, rent, and everything is really becoming more expensive.
But just because your local deli increased the price of your favorite cheese—or whatever it is that you like to treat yourself with—doesn’t mean you’ll stop buying it, right?
Price increases are an expected part of doing business, and if something is valuable and important to a consumer, they’ll continue to buy or subscribe to it even with a price hike.
That doesn’t mean though, that you can increase your prices every day for 12 months and expect your business to flourish. But don’t fret! We’ll cover how and when small businesses should increase prices, how to do it gracefully, and how to help your practice in the longer term.
Why you should raise your prices
One of the most common reasons or indicators of the fact that you should raise your prices is supply and demand. If you’re constantly overbooked—whatever that may look like for your business—or busier than you’d like to be, you should definitely consider a price increase.
Another very legitimate reason to consider a price increase is because of inflation. Since the rate of inflation is the highest it’s been at in decades, it’s very fair that you want your pricing power and business to keep up with the rest of the market and the latest interest rates.
A really critical aspect to any business, are its customers of the highest level. By increasing your prices, you can differentiate between the important customers who know and understand your worth, and the not-so-good customers you are fine to discontinue doing business with.
Also, depending how much you increase your prices, the increase in price may lead to increased revenues even with less customers or work.
When should a business increase prices?
Basic economics, or supply and demand, are the key indicator of when exactly a business should increase its prices.
The best time to increase your prices by a given amount of percentage points, is when you know your customers are really happy with your services. When customers know how much value you bring to them or your business, they’ll continue to work with you even if it’s a bit more expensive than it was before.
Before you implement a price increase, be especially articulate about just how much you’ve done and the worth you’ve brought to your clients before the price hike.
If your business is service-based, like a managed service provider (MSP) business, your customers generally expect price increases every now and again. The trick is to not raise prices too often, let’s say no more than once every year, and also to give your customers enough notice so they’re not surprised getting a higher bill than usual, or think you were trying to see if they’d notice.
One thing you can do to soften the blow of a price increase, is offer bundle options that will give your clients the feeling that they’re still getting a good deal. An example of this is if you offer your services in a month-to-month contract, try offering a six-month or year-long contract at a lower cost than the month-to-month rate to keep clients happy and still feeling like they got a good bargain—even if the new bundle discount costs higher than they were used to.
What happens if a business increases their prices?
From a cause-effect (or simple economics) standpoint, when business owners raise the prices of their company’s services or offering, this typically leads to a decrease in demand.
But just because some customers may leave, it doesn’t necessarily mean that you’ll make less money than you did before the price increase. This depends on how much of an increase you administered, and how much the supply reduced because of it.
Usually if a company decides to bump up its prices, it does so because it believes the increased revenue per item will exceed the decreased price loss in sales that it loses due to the increase.
That being said, while many of your dedicated clients will probably keep their business with you, make sure you prepare yourself that some clients may take their business elsewhere, or that some may be visibly upset or rude.
In order to help your customers understand why you’re raising your costs, make sure you have a pre-prepared explanation as to why exactly you decided or even need to boost your prices. A general recommendation: tout higher costs and/or that you’ll be increasing the quality of products and services that you’ll offer, like quicker response times, or offering discounted bundle packs to soften the blow.
How do you implement price increase?
Firstly, there’s no one-size-fits-all guide you need to follow meticulously in order to implement a price increase; what you need to do will vary from other companies depending on your business, what you offer, how much your services cost, and by how much you’ll be increasing your costs.
BUT if we were to create a step-by-step guide on how to implement a price increase, it would look a little something like this…
1. Conduct market research, and plan ahead
Before you implement your much-deserved price increase, conduct a thorough investigation of how your competitors are pricing their services to make sure that your prices won’t be leaps and bounds higher than your competitors, leaving you looking greedy and foolish.
2. Think ahead at what costs you can expect over the next year
When raising your prices, you need to consider your operating cost, so you know how much to price your offerings at so you can make a sizable profit—whatever that means to you. You don’t want to increase your prices, only to see you miscalculated your operating costs or face a substantial increase from the suppliers you rely on, and have to raise your prices once again within a matter of weeks. Instead, plan ahead and factor in any unforeseen costs so you can be sure that your new prices will serve you well for the foreseeable future.
3. Communicate the price increase to your team and customers with a considerable notice period
Make sure you inform your team about the upcoming increase so they can also plan ahead and feel that they’re part of the team.
Also, be sure to give your customers enough notice, how much exactly is up to you, so they’re not shocked when getting a higher-than-usual bill, or worse, have them think you were trying to get away with conning them.
4. Throw in extras or discounted bundles to soften the blow
Customers will probably not be exactly thrilled to have to pay more than they currently do. So, to cheer them up, consider offering discounted bundle options—like a buy 5 get 1 free deal, or whatever feels right to you that still makes financial sense—that will give your clients the feeling that they’re still getting a good deal and you’re on their side. You should also think about what is something that you could throw in with your current service offerings that would cost you very little, but would have a higher perceived value to your clients.
5. Implement the price increase
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