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Home Running A Business Can You Safely Raise Prices Without Scaring Off Customers?
Pricing products is all about profit. If you’re not getting paid what you’re worth or making enough revenue, a price increase can help you fix that. And when high inflation becomes a factor, price increases may be a necessity, too.
However, before you raise prices, consider this: what will your customers think? And even more importantly, how will they react? Plus, what will it take for you to land on that Goldilocks price increase – not too high, not too low, but just right?
Pricing requires a long-term view. If you’re merely trying to cover a one-time cost increase in raw materials, a price increase isn’t the solution (short-term financing, like a line of credit, may serve you better). If you’re looking at a long-term trend in the cost of your needed supplies, however, then you will need to inch up prices, too. Otherwise, your profit margin can’t and won’t keep up.
Before you add another 10 cents to the sticker gun, really consider both your current costs and any future cost increases liable to happen in the next year or two. This, BTW, isn’t a task for the weary during a period of high inflation. A quick way to turn off customers is to deal with the hassle of a price increase only to turn around and do it again six months later because you didn’t think about future costs. But, then again, so is a huge all-at-once, across the board increase.
Harvard Business Review also offers this advice:
The first question to ask is not, What should the price be? but rather, Have we addressed all the considerations that will determine the correct price? Pricing is not simply a matter of getting one key thing right. Proper pricing comes from carefully and consistently managing a myriad of issues.
It’s important to consider that the ultimate goal with raising prices is to stabilize your profit margins so you can grow consistently. Some clients won’t be able to afford your higher prices and that’s okay. Raising prices enables you to realize quality over quantity and find out exactly what a good customer looks like.
You can help ease clients’ pain about the higher prices by offering things like: product or service improvements, bundling packages, or adding new service options. Recently, some industries have adopted a practice known as “shrinkflation” – keeping prices consistent while reducing the package size so that the next profit per unit rises. Note, however, that shrinkflation has its pros and cons. Like all pricing changes, tread cautiously and intentionally.
Once you’re ready to raise prices, remember: timing is everything. Consider the following in your quest to make your prices match your profit goals:
Deciding when to raise prices and by how much is relatively easy compared to actually communicating the increase to current customers or clients. A good first step before revealing the increase is to highlight the value and ROI of your products or services.
No matter how scary the prospect, remain confident in your decision to raise prices and give customers a fair warning about any price bump. Keep the messaging simple and direct. You should explain the increase but don’t apologize for it, and be honest. While your clients may not like the impact of a price increase, they do understand that no price lasts forever.
Milan is a digital marketer with a passion for the written word. With a background in journalism, his focus is to always discover the right story to align with big-picture objectives. Outside of his day job, you'll find Milan enjoying the beautiful PNW with a crisp craft beer in hand, improving his photography skills, or indulging in the Seattle music scene. Milan has a B.A. in Journalism from Temple University and is a regular contributor to Lendio News.
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