As a small business, you may notice you are paying more for your raw materials and the services that help you run your business. With inflation, you also need to pay your workers more to help them afford to live.
Because of this, you may have toyed with the idea of raising the prices of your goods or prices. But you may be holding back on pulling the trigger because of fear or uncertainty. So here is how to raise prices as a small business:
Why Pricing Is Important For Small Business
Running a small business is hectic. Most of your employees are probably handling multiple roles at a time and not getting paid for all of them. Sourcing materials, paying employees and suppliers, paying for advertising and other services, and a myriad of other costs that come up are not cheap.
How you price your products as a small business is very important. Chances are that your products are your only source of revenue. Your small business has to at least break even from month to month to continue running.
Products that are too expensive for your target market will not sell, and those that are too cheap will not keep the lights on. Finding the balance between appealing to your audience and earning revenue is the key to reasonable pricing. Competitive advantage pricing helps you grow your small business and not just run it.
Is It Time To Increase My Prices?
So, what are acceptable reasons to increase prices? Times of high inflation usually signal businesses to raise their prices. There are several ways to protect your business from inflation. However, there is only so much you can do before you have to raise prices. But when should you raise your prices?
Another way to know if you should increase prices is to look at your profit versus the work you put in. If your employees are working every day, taking no rest and usually almost 20 hours, just for your business to get a profit, it’s time to raise prices. Increasing prices would increase your profit and help ease the burden on your employees.
When you want to reposition your brand or products, it may be time to raise prices. But you may be asking, “how do I raise prices without losing customers’ sales?” Changing your target clients usually involves changing how your brand or products are perceived. You would need to invest in better quality, different advertising, or showcasing a different aesthetic. If you are looking to attract a certain affluent class, raising prices would signal the affluence of your brand.
Another opportune time to raise your prices is when adding value to products or services. You can increase prices if you add additional services to what you usually provide. Additionally, if you change the ingredients of your products, you can charge more.
How To Set a New Price
Do some research when looking to increase your prices. Take a look at your competition, the market rate, and the location. Then, determine what value you are bringing to a customer and try to put a price on it.
Check your production and labor costs for all your goods. If you provide services, check the cost of the software and services you use to provide your own. Also, take note of the time spent by you and your employees. These things will dictate what price an item or service should be.
You can choose to only charge extra for specific items. Find the products or services that cost you the most to provide, then increase the price on them.
How To Approach a Price Increase
Boosting client retention is important for growing a small business. An increase in your prices can be off-putting to your regular clientele. Some may stop using your product or services altogether. However, most people like sticking with businesses they trust. As a small business, use the reputation you have built with your customers to launch a price increase.
Tell A Story
Use your brand’s story to emotionally connect with your customers. Use a story that connects with your target audience on a platform they usually use. As a home renovation company, you can highlight that customers will be relieved that projects are completed on time and within budget.
Add Some Value
When looking for how to raise prices, remember to add some perks to your products or services, like free samples, bonus items in a subscription package, and more. These perks should benefit the customer enough that they can rationalize the price increase.
Ask your customer’s in a poll what perks they want to be incorporated into your business if you need ideas.
Bundling two or more products or services together will make it seem like the price has remained the same. For example, hotels bundle room and board, meals, and activities for a fun vacation. Find creative ways to bundle items or services you sell for pricing opacity.
How To Tell Customers about Price Increase Example
When raising prices, always initiate the conversation with the customer. Let them know in a kind but concise manner. Give your customers time to process the news and adjust to the new prices. Then, take their criticisms and feedback into mind when adjusting prices later.
Here is a “how to tell customers about price increase” example:
“Dear Valued Customer, [Business Name] is determined to provide you with quality products/services. As such, please note that prices of
How Will Customers React To A Price Increase?
Customers react to price increases based on how much the price increases and how fair they perceive the increase to be.
If you approach raising prices as detailed above, there is a bigger chance your customers will be ok or even react positively to the increase in price. However, prepare yourself to lose customers and receive complaints regardless.
How Companies Raise Prices without Raising Prices In 2023
Companies sometimes cut prices and lower their profit margins on certain items. With lower prices, more customers flock to your business to buy these items, which is how to raise prices without raising prices. An increase in sales gives you an increase in profits that can offset high production costs.
Raising prices is inevitable as the economy and your business shift. Change is good, and charging more for your products or services will enable you to grow your business.
Choosing to go about a price increase in a well-thought-through manner will help you get your customers on board. Remember that you may lose some customers as your business grows, but you will attract new ones.