How to increase your prices to deal with rising costs

Energy, raw materials and wage bills are just some of the sharp increases in operating costs all businesses are having to deal with right now. 

Headlines such as The most small businesses since 1974 are raising prices due to inflation and Small businesses are feeling the pinch of rising prices at the gas pump, mean that after a punishing few years due to the coronavirus pandemic, companies are once again facing external pressures that are beyond their control.

To deal with the impact of these rising costs, many businesses have been forced to consider raising their prices.

Raising prices is never an easy decision but in these unprecedented times, it might be a move you need to make.

So how can you increase your prices and keep the loss of customers to a minimum? This guide outlines some key tips for you to consider.

Understand your costs

Before you make any changes to your prices, you need to ensure you fully understand the exact costs that you are having to deal with and how they are affecting your business. This will help you develop a strategy for dealing with it and work out how much you need to increase your prices or whether you have other options such as securing external business funding.

Employing the services of an advisor can help you get to grips with understanding your costs and help you decide what you need to do. 

Study your competitors

In the current climate, if your business is facing rising operating costs, your competitors probably are too. Investigate their prices and see if they are increasing them. If they are, find out by how much. If most businesses in your sector are putting prices up, your customers are more likely to accept any changes you make.

Segment your customers

Deciding which customers are likely to be less sensitive to a price increase can help you make targeted decisions.

Customers who buy big value products or services may be one such group because as a percentage of the overall price, a price increase is less of an impact than for lower value items. 

Corporate customers who are not spending their own money and use a budget provided by the business they work for may also be less sensitive to a price increase as they may be more focused on the result of the service or products you provide them with.

Communicate with customers

If the first time an existing customer hears about a price increase is when they receive a bill or visit your website to make a regular order, it is not likely to go down well. It’s much better to be transparent and communicate openly with your customers in advance of a price increase.

Be honest and tell them the reason why your prices are increasing. Explain to customers that to maintain your existing levels of quality, you need to raise prices due to increasing operating costs that are impacting your business. Emphasize factors that customers particularly value such as your customer service or speed of delivery. This can help convince them not to switch to a competing business. Make it easy for customers to get in touch if they have any questions. 

Start with new customers

In these times of particularly high costs, many businesses need to act urgently and that might mean raising prices for all customers. However, some companies may be able to focus on new customers first, who are more likely to accept the new price because they are new to your business.

Examples include:

• if you run a service business, you could begin to increase your hourly rate to the next set of clients.
• if you have a product business, you could keep current prices for existing customers or subscribers to your email list, but charge a higher price to people who haven’t bought your product before.
• if you operate a subscription business, you could raise the subscription fee or encourage new customers to join by a certain date to pay the current price before it increases.

If a significant number of new customers are happy to pay the increased price, you’ll know that you can charge more for your product or service. You can then get in touch with older customers explaining you haven’t raised your prices for a while, but you now need to do so, due to the pressure of rising costs.

Add extra value

Providing something extra that doesn't heavily affect your profit margins but delights your customers, can help soften the blow of a price increase. For example, service businesses could provide eBooks with relevant educational content and an electrical products company could offer a free extended warranty.

You might also be able to partner with other relevant businesses and bundle together your products or services with theirs, which customers are willing to pay more for.  

As well as making your existing customers more amenable to a price increase, providing extra value could also help to attract new customers.

How TaxAssist Advisors can help

The current times are very tough for many businesses and hiking up prices might seem like a bad decision given that millions of people are having to tighten their purse strings.

However, if you do it right and you communicate authentically, you might be surprised at how many of your loyal customers are willing to support you.

TaxAssist Advisors can help you with your cash flow management. Inquire online here to book your free, no obligation consultation.

Date published Apr 13, 2022 | Last updated Jul 22, 2022

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.