How To Raise Prices Successfully
September 18, 2017
Cost of goods are increasing. Operating expenses are going up. Net profit is shrinking. A big question becomes, "How can a small business raise prices, pass increases on to customers, and still retain loyalty? This can be a tough decision, especially, when the economy is not booming. All businesses want to maintain a certain profit margin without antagonizing customers and run the risk of losing them to the rival competition. Of course, an alternative might be to not increase prices and sacrifice profits hoping that customers will not “cut and run.”
Assuming that a business’ strategy is not to be the low-cost provider in the market, there are some practical ideas that work:
Pricing strategy – A business must decide if it wants to raise prices incrementally – a little at a time – or all at once immediately getting to the optimum price desired. Either approach can work, but a key to a successful implementation is to understand the business’ customer base and know, as best possible, which approach will be most acceptable.
Transparency – A key ingredient to a successful price increase – meaning customers are retained - is transparency. When customers know in advance that prices are going to be raised and the reason for the increase, they are more likely to accept the price increase and remain loyal customers. Do you like “sticker shock" price increases? Probably not and neither do customers.
Variable price structure – Think of other ways to increase revenue rather than strictly raising prices on the primary products or services sold. Consider “add-on” pricing such as extended warranties, personalized customer service, or quantity discounts, as examples. Try creative pricing. It just might increase profits!
Value – Stressing value is one way for a company to differentiate its products and services from its competition. Superior offerings in the form of higher quality items, improved customer service, product or service uniqueness, etc. can command higher selling prices.
Explanations – Some customers will surely question the reason for price increases. It is important to have a ready answer – quick and concise – for those customers who raise the question. It is not necessary to get into the fine details of the company’s financial and pricing structures, but if customers understand a price increase, they are generally more accepting.
Employee buy-in – Remember, employees are the faces of any company and have direct contact with customers; therefore, it is important for employees to understand the reasoning behind price increases. Before employees can be positive with customers and advocates for the company, they must feel comfortable with answers they are expected to give.
Prices can be raised on products and services without losing customers. The key is to handle price increases properly. Increased revenue is important, but customer retention is paramount.
Association of Accredited Small Business Consultants