Is it time to raise your prices? 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. Know Why It’s Time for a Price Increase 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. What to Consider When You’re Raising Prices 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: \tAre your current customers happy, satisfied, or loyal to your products and services? That may make it easier for them to pay more. If you’re not sure, consider sending an email survey (these can be an affordable way to score valuable feedback) or asking through a social media survey. Let them know your ideas and find out what they think. \tDo your customers have a threshold that you need to consider? Will a 2% increase barely be noticed, but 5% send customers running? \tShould you raise all prices or just a few? If you’re concerned that an all-at-once, across-the-board price increase won’t bode well for your business model or your brand reputation, consider raising prices on a consistent timeline instead. You could potentially raise prices at the beginning of every year or perhaps after a certain period of time with a particular client. \tCould you add a smaller size or a basic service package to your lineup so that customers have the option of scaling down but still accessing your goods/services? \tHave your competitors already raised prices? If so, your increase for the same product or service may be met with almost no response. If not, will you trigger across-the-board increases in your industry or will you be sitting alone on the higher-price island? 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. Disclaimer: The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.