It seems obvious but there are right ways and wrong ways to go about price increases. The wrong way can see you losing customers and sales of even popular products. The right way, and timing, can help you mitigate these potential challenges and reduce the negative responses.
Initial Considerations
Firstly, you need to consider the following factors that impact your pricing. Each of these can play a role in when, how often, how much and the strategy you select in increasing your prices.
- Industry standards and needs
- Your customer profile/demographic
- Business expenses as a whole
- Individual product profit margins – Know the total costs
- Your brand, how people see you and what you stand for
- Investment in improvements
- Demand
- How far ahead your work is scheduled
You can read more here about different pricing strategies.
Signs you need to increase your prices
Not covering costs – not basic costs, comprehensive costing including landed costs, all parts and all labour.
What are your goods and services worth? We often hesitate to raise prices as it can sometimes feel like a greedy move or like you’re taking advantage. Being priced accurately often adds perceived value and appreciation for your product or service. People perceive good quality products as having a higher price tag – especially IF your products are of a higher quality.
Is it worth your time to provide the product or service?
Evaluate the market and your competitors. Is your pricing competitive and how does the quality of your products compare?
Quality matters. Higher quality products can fetch higher prices, and higher priced products are perceived as being higher in quality.
Which brings us to perceived value. How much do your customers value your products? Is there a particular product that has a higher perceived value?
Price increase options
Regardless of what you increase, a good range to aim for at any time is 5-10%. Increasing prices by this amount every year or so will help you manage inflation and rising costs. Here are some options:
Increase all products across the board for all customers. This may seem like the best option but it likely isn’t. You may have customers on individual pricing plans that may need to be delicately handled. You will have some products that are of a higher quality and have a higher perceived value than others. Making the same increase to everything could adversely impact sales and your reputation.
Consider increasing the highest quality products – Products with a higher perceived value will withstand a price increase far better than other products. In fact, it can often elevate the perception of that product as higher quality goods come at higher prices.
Consider increasing individual pricing for some customers – Particularly when you are a business that does customised pricing. For example – You have that one customer that has had the same pricing for the past 6 years because you have been too worried about rocking the boat and straining the relationship. If they value your products, they will pay what you want from them. Know your value and stand by your value. Below are some tips to helps make sure your customers are happy to stay on board.
The Best Time to Increase Prices
Consider when your demand is highest and make the increases in preparation for your high demand period. Ultimately this can depend on your industry and products or services you offer but for the bulk of businesses approaching the holiday season is the best time to increase prices. If you supply to businesses, they will be getting ready to stock up. If you sell to consumers, they are geared to spend money in the lead up to the holidays.
You should warn your customers 30 days prior to your increases being applied. This gives them the opportunity to purchase at the current price which some customers will take full advantage of, and they will be happy about it.
Effective Communication is Key to Success
Communicating price increases to customers often brings uncomfortable responses. These could come in the form of direct responses, indirect chatter amongst customers, social media comments, or simply even the loss of some customers.
You must explain the price increase clearly with well articulated reasons. Notify customers via email, social media and add a notice to your website/e-commerce store. If personal communication is appropriate for particular customers, personally reach out to them but ensure all communication is documented so there are no discrepancies about what was said and when.
Make sure your customers know they are VALUED. Thank them for their continued support.
Consider giving your customers a small gift once the new prices come into effect to thank them even further for their support.
Know your value – Don’t apologise. We all know that the cost of living has increased and some people will be struggling to balance their costs and income. This is not your responsibility to make it easier on everyone else and to bear the weight of increased costs.
Is a price increase the right choice or is there another way to find that margin?
There are a few different things you can do to manage price adjustments, particularly if you are in an industry where your customers will not react well to price increases.
Increase fees as opposed to product prices – this could be shipping and handling or other fees you may extend to your customers.
Offer less for the same price. Big brand packaged goods are experts at this. Keep the same packaging but reduce the quantity or weight within the packaging. This is an option that typically always results in some deferred backlash.
Increase the price but add additional value to the products. Throwing in something a little extra can help soften the shift to the new prices.
Key Points to Take Away
- Know your FIGURES – What are all of the costs? What are the margins? What sells and when? What is the best quality? What do customers feel offers great value for money? This is where you will find the best opportunities for price increases. Using business software solutions like Jiwa can help you answer these questions quickly and easily.
- Work out a STRATEGY that suits your business – Timing is important. How you communicate the changes is important. Making sure your customers feel valued and appreciated will make the transition easier for everyone.
- LEARN from challenges – If customers react negatively; sales decline above what’s expected; your reputation suffers; people are dissatisfied with the quality for the price; work out how you could adjust your strategy and manage the next price increase differently.