As a local business owner who cares about their customers, you’re sensitive to your customers’ wants and needs. You try to keep your prices as low as possible not only to stay ahead of the competition, but also to stay within your customers’ budgets. But at some point, you may want (or need) to raise your prices. So how can you do that without upsetting your clientele or jeopardizing your revenue stream?
Why You Might Raise Prices
First, think about the reasons you might raise prices; you may want to justify your decision in some situations.
These are some of the most common motivations:
Increasing material costs. There isn’t much you can do about increasing costs along your supply chain. If you sell hamburgers for $5 each, and the cost of ingredients increases from $3.50 to $4.50, your margins will be dangerously low. The only options are to source cheaper goods (which you may not want to do because of quality concerns) or increase your prices.
New and/or better services. If you’re adding new equipment, new products, or new services, you may need to increase prices to cover their costs. For example, if you own a gym and you decide to install a swimming pool, existing member dues may not be enough to cover the new maintenance costs.
Company expansion. Most entrepreneurs eventually want to grow the business, expanding to new locations or offering a more robust array of products and services. However, to do this effectively, you’ll need additional capital, which you may need to raise prices to obtain.
Financial trouble. If your business is struggling, you may consider raising prices to stay afloat. This is a hard decision to make, as there’s no guarantee that raising prices is the right solution; any number of issues could be the root cause of your financial stress.
Inflation. Due to inflation, the cost of everything gradually rises. Most consumers have come to expect steady price increases over the course of years, so in line with increasing costs everywhere, your price adjustments may be interpreted as perfectly appropriate.
How to Ease the Transition
Now, let’s focus on some strategies you can use to raise prices in a way that your customers will accept:
Be honest about why you’re raising prices. It’s up to you whether you want to disclose why you’re raising prices, but it will often work in your favor. Customers appreciate corporate transparency, so they’ll often better receive an honest, direct admission than an attempt at manipulation. The exception here is if you’re raising prices to make up for a massive mistake, or in a desperate bid to preserve your profit margins. If customers ask you why you’ve raised prices, make sure you have a good reason at the ready.
Raise slightly and gradually. Even if your prices increase significantly, you’re better off increasing your prices slightly and/or gradually. For example, if you need to increase the price of your membership from $35 to $50, you might start with an increase to $45, with an announcement that you’ll raise from $45 to $50 next year. This doesn’t always work, however since multiple consecutive price increases can sometimes be taken as worse news than a single, significant price increase.
Raise prices with a buffer. Introduce a kind of buffer to shield your customers from the immediate effects of the price increase. For example, you might increase prices for new customers only, with a plan to raise prices for legacy customers next year. Or you might merely announce a price increase and implement it at a later date.
Add alternative payment options. Some customers may not take well to the price increase because it interferes with their budget, or what they’re willing to spend. You may be able to mitigate this point of contention by offering alternative payment options. For example, if you charge a monthly fee, you may offer customers the option to pay annually, with a marginal discount attached.
Offer a cheaper substitute. In some cases, you may also be able to offer customers your original, low prices, but at the expense of certain products or services. For example, you may have a “budget” service package that prevents customers from making use of your latest investments, but allows them to pay your original prices. Depending on your goals, you may introduce this as a temporary measure, eventually removing it in favor of your core offerings.
With these strategies, you can raise your core prices without alienating your customer base. There will always be some customers who don’t take kindly to the increase, and you may lose them, but for the most part, if you handle the situation appropriately, your customers will understand.
