How to Know When to Raise Your Prices as a Business Owner

From inflation to rising payroll, keeping your business in good financial health can be a challenge. Maybe you have been holding off on increasing prices for a while, not knowing when the timing would be “right” or how your customers would react. Pricing strategy can be tricky. Here are some things to take into account if you feel like your prices need a second look.

Know Your Customer Base

In business, listening to your customers is always a wise choice. Are your customers buying from you because you are the cheapest choice on the market, or because they are loyal to your product, service, or brand? A major sign that you may need to raise your prices would be your customers mentioning how cheap you are.

Determine Your Current Profit Margin for Each Product or Service

Your profit margin is the revenue left after subtracting what it costs to produce the product or service. Knowing this number can give you a clearer picture of which products or services you may need to raise your prices on, or how inflation is impacting the financial health of your business.

Has Your Product or Service Improved Since Your Last Set Your Prices?

You know what challenges your business has overcome, and how much it has grown. Is the product or level of service the same as it was when you first set your price? Have you made any improvements, or added more value?

You may have become more experienced and knowledgeable in your field. You may be delivering results more quickly than when you started. Your pricing should reflect the knowledge and skill that you are bringing to the customer.

What Does Your Competition Look Like?

If you have not peeked at your competition in a while, consider this your excuse. Are their prices and services comparable? Are you priced cheaper? More expensive?

Weigh Different Pricing Structures

Offering different pricing tiers can give your customers options and more flexibility. For example, if you are hesitant to raise your prices because your customer base may be more budget constrained, consider offering a good or service at your current price, and then having a more premium option. 

Know If You  Can Contractually Increase Your Prices

Review all contracts with a professional to be sure you are adhering to the contracted pricing, if any.

When Should You Increase Your Prices?

When it comes to timing of you increasing your price, sometimes you have no choice. For example, if one of your vendors decides to raise their rates, you may be forced to reflect that immediately in your pricing.

If you do have some cushion to implement an increase, consider doing so at the beginning of the year or the season. This is likely to make more sense to your customers.

How to Notify Your Customers of a Price Increase

Whether or not you will give your customers notice of a price increase is ultimately up to you. Being transparent with your customers can help to build trust. By notifying them early, you can also help them budget and plan for the increases.

Decide which channel you will use to notify your customers. Email may work for some companies, while others will want to print and mail notices. If you are a business like a restaurant, on site signage where customers will notice it may be the way to go.

In your communication, be sure to include the date for when the new price will take effect. Including the reason for why your price will increase may curb some questions your customers will have. Keep it short but clear, and avoid being vague. You can choose to relay how your value has increased, or talk about how rising prices have affected your business.  

Consider Communicating Directly to Long-Term Clients

While channels like email or social media may reach a group of people faster, long term or loyal customers may warrant a more personal touchpoint. In person conversations, phone calls, or direct emails may be better suited for these customers.  

 

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This article is for general informational purposes only and is not to be relied upon or used for any particular purpose. Cross Insurance shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, insurance, accounting or other professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article are that of its author and do not necessarily represent the views of Cross Financial Corp. and its subsidiaries and affiliates (“Cross Insurance”) or Cross Insurance’s management or shareholders.