Are you holding back raising prices because you fear you'll lose customers? Raising prices doesn't have to mean losing loyal customers. Check out these 12 tips for increasing your prices thoughtfully in this economic environment.
How to Notify Your Customers About a Price Increase
You should always notify your customers about price increases before they happen. This transparency gives your customers time to plan for the increase. It also allows you to meet with customers to re-negotiate contracts – and potentially forge an extended agreement to lock in the current price.
It's critical to notify customers via clear communication. Include details on why the price increase is happening and any changes to the product or service customers should expect as a result. Customers may reward this transparency with their continued loyalty.
1. Timing matters.
The best time to raise prices is when your customers are most satisfied with your product or service. If you’re planning a price increase, be extra diligent about proving your worth before that.
2. Offer perks.
Customers might have an easier time accepting higher prices if they’re getting something extra. Consider what you could offer alongside your current product or service: ideally the offer costs as little as possible for you with a higher perceived value to the customer. For instance, you might offer free gift wrapping or a free e-book.
3. Rethink package sizes.
Restaurants sometimes decrease serving sizes slightly due to rising ingredient costs. Meanwhile, the price for the customer stays the same. You can do this for almost any retail product, from cosmetics to candles.
The best time to raise prices is when your customers are most satisfied with your product or service. If you’re planning a price increase, be extra diligent about proving your worth before that.
However, this tactic can backfire if customers notice. You can adjust your pricing based on the new size. For example, cut your $15, eight-ounce macaroni and cheese entrée down to a four-ounce appetizer portion for $9.
4. Look at it like a 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 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, and many smaller businesses use the tactic when gas and electricity prices soar. This can be a good strategy if you think your price increase will be temporary; you can remove the fee when the need for it is over.
6. Improve your product or service.
Customers are often more willing to accept a price increase if it’s accompanied by improvements to your product or service. Better quality fabric for clothing, new menu items in your restaurant, or even new packaging for a product can help justify a price increase.
7. Offer temporary discounts.
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 to bring prices down to their original levels. While frugal customers will use these discounts, others won’t bother, so you’ll still probably have plenty of people paying full price as well.
8. Bundle products or services.
You can soften the pain of price increases by offering new bundles of products or services. For instance, if a nail salon owner needs to raise the price of manicures, pedicures, and foot massages, they can offer a bundle with the services discounted. These types of offers can also help your business stand out and stay competitive.
9. Find a new customer base.
If you need to raise prices drastically, you may consider targeting 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 losing some customers.
10. Raise rates regularly.
If your business is service-based, such as a B2B company, lawn care business, or cleaning service, your customers likely 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 is a good way to lock in more price sensitive customers.
11. Prepare for potential backlash.
When you raise prices, you’re bound to upset some customers. 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. Communicating effectively can be key to keeping customers.
12. Plan ahead.
Before raising your prices, consider 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 again.
Factors to Consider Before Increasing Prices:
- close/conversion rate
- last time prices were raised
- competitive landscape
- opportunity to incorporate
Tips to Raise Prices and Retain Customers:
- Time it right.
- Add extras to sweeten the deal.
- Reduce or change packaging or serving sizes, if possible.
- Add or raise fees.
- Offer a discount that offsets the price increase.
- Target a new customer base.
- Raise rates at defined intervals.
- Prepare for a potential backlash.
The Takeaway
You can raise prices while retaining customers and offering thoughtful customer service, but decisions will differ based on a business's needs.
A version of this article was originally published on June 13, 2014.
Photo: Getty Images
