Every business owner wants to make money – without raising prices. But every business owner, at some point, also has to bow to market forces and add a few numbers to their sales price.
Fortunately, with inflation being impossible for customers to avoid, consumers seem to understand that business owners need to raise prices to stay in business. I spoke to a number of small business owners who raised their product or service prices and lived to tell the tale. Here are some takeaways.
1. Don't feel guilty – everyone is raising prices.
Inflation for a business owner is like a rising tide to a beachgoer. You can ignore it for awhile, but once the water soaks your blanket and starts to take your lawn chair away, you’re going to have to react.
“I have to pay my bills. My bills don’t go away. My labor costs don’t go away. And food costs are going up,” says Buddy Foy, Jr., the owner of restaurants The Chateau On The Lake in Bolton Landing, New York and The Chateau Anna Maria in Anna Maria Island, Florida.
In other words, the tide has come in, and there’s no ignoring it for Foy, who has had to raise the prices of food on his menus a number of times.
“I’m paying two and a half times as much for chicken as I did a year ago,” he says.
Chicken prices in general have gone up around 19 percent in the last year, according to The Washington Post, but Foy says that you’re going to spend more if you’re purchasing something of quality. Selling food in general, Foy adds, is tricky because suppliers are having a tougher time getting the product to restaurants in a timely manner. Whereas you once might have received a shipment of romaine lettuce on, say, a Monday, now it’s coming in on a Thursday, and so it’s going to be fresh for a shorter window of time.
On a smaller scale, Molly Bissantz, owner of Grooming by Molly, a dog grooming service in Boise, Idaho, which she runs out of her house, has encountered similar issues with the cost of supplies. During the early days of the pandemic she lowered her prices – which helped get her through – but she recently had to reassess.
The items she needs, like dog shampoo and brushes, are big factors in determining what her prices should be. So is the cost of water and electricity (she often has hair dryers going). And as the cost of supplies have gone up, she can’t avoid raising her prices any longer. She is in the midst of slowly increasing her prices, raising haircuts by $10 and the bath and brush service by $5.
Bissantz offers some boarding services – and isn't raising prices for that.
“I am fortunate enough to be able to work from home and not have a huge overhead, so this helps me be able to stay more competitive in my prices,” she says.
2. Make sure you don’t waste your money.
It’s never been good business to waste money, but with margins tighter than ever, prices going up, and customers only so willing to pay so much, business owners have to find new and innovative ways to stretch their dollar. That might mean investing more into your business at, yes, just the time you want to pare expenses back.
“We tried to absorb the costs as long as we could,” says restaurant owner Foy. But eventually the tide came in, and he had to raise his prices 20-25% over the last five months.
But while raising his prices, Foy has also looked for ways to make the most of each dollar he brings in. For instance, he invested in a better walk-in cooler: Two degrees colder, he says, and you can get a two- to three-day longer shelf life on certain vegetables.
He also scrutinizes his inventory every day. Mistakes – like ordering too many lemons only to see them spoil – can make for a very bad day, and Foy says that no business owner can afford to pass on the cost of their blunders to the customer.
3. Your prices can keep your more competitive.
Yes, you should keep your costs low to compete with other businesses, but if you’re bringing in less money, you have less money to invest back into the business.
Liz Sweeney is the owner of Dogwood Solutions, a marketing, communications, and business solutions firm in Boise, Idaho. Sweeney says that she has raised her prices in 2022 but has committed to keeping them below a 10% price hike. That hasn’t been easy, but she has more to worry about than her own salary or keeping prices low for clients – she also has half a dozen contractors to pay.
“We made sure what we pay our team is keeping up with inflation, and we looked at where we anticipate expenses will land in the second half of 2022,” Sweeney says.
Sweeney says that she is continually monitoring inflation and analyzing her prices.
4. Try to give your customers more for their money.
Customers generally understand that a restaurant has to raise prices to stay in business. It may be a harder argument to make to clients, though, if your business appears to have little inventory and low overhead.
If that’s your situation, you might want to improve your products or services – before raising your prices. That’s the route Sandra McLemore took. She runs a consulting business, Travel Marketing and Media, coaching over 42,000 travel advisors in North America and helping them start and scale their travel businesses, and she also provides a monthly online travel magazine for her members. McLemore offers two subscriptions for her members: a "lite" membership at $29 per month; and a premium "pro" membership, which originally cost $49 per month and was recently raised to $69 per month.
But before raising her prices, McLemore made sure she beefed up the content in the online travel magazine so her members would be getting more value for the higher price. "I wanted to make sure the price was a no-brainer," McLemore says. So far it has been a rousing success, with positive feedback and only a handful of subscription downgrades.
McLemore also offers some wisdom that any business owner raising prices should consider: “Obviously nobody came and said, ‘We're so happy you raised your prices,’ but what we did hear was, ‘Oh my gosh, this extra content is going to save me.’ If [your customers or clients] are getting value, they're not going to complain about price.”
She adds that price is often subjective, and consumers attach a value to it. “As long as the value is high, they’re always going to be happy.”
Bissantz tries a similar tack, offering relatively easy-to-do services for free that another professional, like a veterinarian, would charge for.
“I include the majority of the extras in my services. Dogs will get a light teeth cleaning at every appointment, nails will be trimmed, ears will be cleaned, so on and so forth,” Bissantz says.
5. Your customers will (probably) adjust to your new prices.
Sure, there’s always going to be someone who'll take their business elsewhere, but the reasonable people who understand market dynamics, and especially your loyal customers, are likely not going to revolt.
Sweeney says that she hasn’t had any pricing pushback from her clients, and Bissantz says that many of her customers actually were telling her that her prices were too low and that she should raise them.
“My clients are extremely supportive and caring. They all encourage me to grow and be the best me that I can possibly be,” Bissantz says.
Foy says that customers understand the need for a business owner to raise prices. He describes a three-stage process that goes on when they first learn that the menu prices have gone up.
“Typically, the first reaction is disappointment, and then they seem annoyed, and then they say, ‘I understand,’” Foy says.
Inflation has made it a stressful time for entrepreneurs and executives, and landing on the right price can be difficult. But Foy, who has a third restaurant opening this November in Sarasota, Florida, admits that there’s a part of him that enjoys the challenges of calculating the sweet spot of pricing, what he can charge to stay in business without chasing the customers away.
“I like to solve complicated problems,” he says. “And it doesn’t get any more complicated than this.”
Photo: Getty Images