If you plan to stay in business for any length of time, you’ll eventually need to raise your prices. The question, however, isn’t if – it’s when, how, and why you should charge your customers more. Why? Because inflation is a fact of our economy, which means your costs increase a few percent each year – and sometimes more. But inflation isn’t the only reason to raise your prices. A few others include: \tRaise your prices to reposition your product, service, or brand. A restaurant might do this when they change their menu to attract a more affluent clientele who can afford to pay more. The interesting part of this strategy is renaming products for their new price points. If $12 is too much for a hot dog with mustard, would a Senfenwürst have a higher perceived value for some audiences? \tRaise your prices when adding value or services. For example, a therapist may increase prices to leverage new certifications that make them more valuable to customers or the market. Or if you owned a tutoring company and one of your tutors obtained their Masters in math, you might start billing that tutor out at a higher rate. \tRaise your prices to increase your profit margin. Say, for example, you’re a contract podcast producer and you charge an hourly rate. You’ll eventually want to raise your rates to match your experience or other costs you incur. How Should You Set a New Price? First and foremost, how you set a new price should be a function of what people will pay for what you’re offering. You already know what you’re charging, so check out what your more expensive competitors are charging, identify the ones at the price points where you want to be, and look to see the value being offered by the low-price leaders in your category, too. Determine the value customers get from each to help you determine the right price for your market. Don’t forget to factor in location and the cost of convenience, too. How Will Your Customers React to a Price Increase? Plan your price increases properly, raise them incrementally, and spread them out strategically: these strategies could ease any perceived pain or pushback from customers when you increase a price. For example, in 1995, a Big Mac Meal cost $4.59. By 2020, after a series of incremental price increases, a Big Mac cost $7.59. Slow and steady didn’t seem to hurt McDonald’s sales: the fast food giant sold 4,500 burgers a minute last year. Three Ways to Take the Sting of a Price Increase Be prepared to find creative ways to remove the pain from a price increase. Industry experts recommend transparency and openness when implementing a price change, but taking additional measures can help, too. Value Adds Value adds are perks, benefits, or exclusive opportunities that help customers justify price increases by getting more for their money. Examples of value adds include: \tA music store offering weekly open mic or jam sessions for preferred customers. \tA Spanish restaurant bringing in a live salsa band on Thursday nights. \tA moving van leasing company creating a downloadable “moving day” playlist for customers. The other benefit of expanding your value adds is attracting new customers with the value adds and then converting them into customers. For example, one of the music store’s customers could bring her sister with her to perform at the open mic and she could become a customer herself. And if both women bring friends to hear them play, the store’s potential customer list grows even further. To figure out what kind of value add is right for you, the simplest way is to ask your customers. For example, you could send out an email survey with a few options and get your customers to tell you what they want. Everyone likes to be asked for their opinion. Brand Stories Sharing your brand story can help you emphasize how your brand makes customers feel. It's an emotional connection that helps your brand understand you more — and research shows that emotion drives purchase behavior just as much as price does. So, if you’re raising prices, consider also emotionally reconnecting with your customers, which can help remind them how your presence in their lives makes them feel: \tA contractor could key in on customers’ feelings of relief knowing that their renovation will be done well, on time, and on budget. \tA dry cleaner could highlight the feeling of confidence that comes with walking into a boardroom in a clean, pressed suit. How and where you tell these stories will depend on where your audience is. Fortunately, with social media, you can home in on your audience. So, for the examples above: \tThe contractor would probably include Instagram, since they could show before and after pics to demonstrate their offering. \tThe dry cleaner for professionals could try telling their stories on LinkedIn where the professionals are. As with value adds, the potential to increase your market size by telling brand stories is definitely there, especially if you respect the 3 principles of small business marketing (customer value, differentiation, and segmentation).. You can tell your story visually, verbally, or both. And you can dramatize your story any way you want, as long as it will resonate with your audience. Not sure how to tell your brand story? Consider adding it to your website, sharing it on Facebook, Instagram and other social channels, and even sending it through a sincere email, which, BTW, is estimated to have a 4,400% return on investment. Bundling Bundling is packaging two or more items together. Telecoms bundle texting, calling, and surfing as one product. Tropical resorts do it with airfare, accommodations, food, and booze, and restaurants do it with combos. You can do it, too. One good reason to bundle products or services when you raise your prices is known as pricing opacity, which is the masking of an individual item’s price by combining it with other products or services your customer could use. So, for example, if you were a hair salon and you wanted to raise the price of a woman’s haircut, you could bundle a haircut and blowout as one package. Another good reason to bundle (although more for product providers versus service providers) is an opportunity to move unsold merchandise. So, in the fall, a clothing store might bundle flannel pants and bathing suits together to clear the summer inventory out, but sell it as the joys of winter hot tubbing. A third reason is to grow a customer’s “basket size,” which is the number of products or services they buy from you. Doing this achieves two goals: you make more money because you’re selling more, and you have more opportunities to demonstrate your value to more people, both as a product/service provider and a brand. To create bundles, think about what else your customers might find value in if prompted appropriately. If you own a shoe store and you have to raise prices on men’s dress shoes, you could bundle them with a pair of deck shoes and call it a weekday/weekend combo or a turf-and-surf. Or you could put a kids burger, small fries, and a yogurt in a box to create an all-inclusive meal. When Should You Raise Your Prices? There's no perfect time to raise prices. But there are some important guidelines to consider: \tRaising prices too frequently may scare off customers. Let your customers catch up and get used to your new cost. If they see value in what you offer them, they’ll find the extra money in their budgets. Note, however, that periods of hyperinflation may impact what you can and can’t do comfortably. \tTry to avoid price hikes during the high season. Instead, hold steady and make it up on volume, which may require a small investment in marketing. \tRaise your prices AFTER you’ve justified the increase. In other words, offer something different or better before you raise prices or concurrently if bundling, which gives your customer a reason to buy into a price hike. \tExplain why. No one likes a more expensive surprise. Experts in pricing stress the need for transparency. Read more about price increases at your business here. 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.