The cost of materials and labor are rising, but according to a recent survey from the National Association for Business Economics, fewer than one-third of businesses plan to raise their prices in the coming quarter.
Are you holding back raising prices because you fear alienating your customers? Yes, this is a real risk—but there are some ways to mitigate it.
Check out these 12 tips for increasing your prices without losing customers:
1. Time it right.
The best time to raise prices is when you’re sure customers are satisfied with your product or service. If you’re planning a price increase, be especially diligent about proving your worth in the months before you do so.
2. Add extras.
Customers are far more likely to accept higher prices if they’re getting something extra in the bargain. Consider what you could throw in with your current product or service that would cost you little or nothing but would have higher perceived value to the customer. For instance, you could offer free gift wrapping or a free ebook about a relevant topic.
3. Reduce sizes.
Restaurants often use this tactic—keeping price points the same but reducing serving sizes slightly so customers don’t notice. You can do this for almost any retail product, from cosmetics to candles. However, if customers do notice, this tactic can backfire. If you’re worried, consider reducing sizes dramatically and charging proportionately less. For example, cut your $15, eight-ounce macaroni and cheese entrée down to a four-ounce appetizer for $9.
4. Play the numbers game.
The same pricing principle can work for non-food items. For instance, if you normally sell a 10-pack of toner cartridges for $100 but you need to raise the price to $120, create some additional, different-sized packages, such as a five-pack for $70 and a three-pack for $45. This makes the 10-pack seem like a deal, even at the new, higher price.
5. Add or raise fees.
You can avoid raising prices on your actual product or service by adding fees. Utility companies do this all the time, and many smaller businesses used the tactic when gas and electricity prices soared a few years ago. This is a good strategy if you think your price increase will be temporary; you can easily remove the fee when the need for it is over.
6. Add improvements.
Customers are more willing to accept a price increase if it’s accompanied by improvements to your product or service. Better quality fabric in the clothing you manufacture, new menu items in your restaurant or even new packaging for your product can help justify a price increase.
7. Offer discounts to cancel out the price increase.
When you raise prices, you may lose very price-conscious customers. To keep some of them, raise your prices, but offer occasional discounts and deals that bring prices down to their original levels. While frugal customers will use these discounts, less frugal customers probably won’t bother, so you’ll still get plenty of people paying full price, while keeping your bargain shoppers happy.
8. Bundle products or services.
Soften the pain of price increases by offering new bundles of products or services. For instance, if you own a nail salon and need to raise the price of your manicures, pedicures and foot massages, add a bundled mani/pedi/foot massage service in which each of the services is offered at a discount compared to its a la carte price.
9. Target a different customer base.
If you need to raise prices drastically, you may need to go after a new, more affluent customer base. Even if your price increase is modest, expanding your target market a bit to more upscale customers or businesses with bigger budgets can be a smart way to offset the customers you may lose.
10. Raise rates at regular intervals.
If your business is service-based, such as a B2B company, lawn-care business or cleaning service, your customers expect price increases from time to time. If it's justified, raise prices at the beginning of every year or after a customer has been with you for a year. If your services are provided on a month-to-month basis, offering a six-month or year-long contract at a lower cost than the month-to-month rate is a good way to lock in customers who want to avoid the price increase.
11. Be ready for a backlash.
You can’t keep all your customers happy, and when you raise prices, you’re bound to upset some of them. Be prepared to explain why you’re increasing prices (higher costs and/or better products and services are typically the only reasons customers want to hear), both in person and on social media if customers complain there.
12. Plan ahead.
Before raising your prices, make sure you’ve considered not only your current costs but also any cost increases that are likely to happen in the next year or two. You don’t want to go through a huge struggle to raise prices, only to find four months later that you need to do it all over again.
Raising prices may not be easy, but these tactics can make it as painless as possible for you and your customers.
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