Owning a business comes with significant responsibilities, including being able to provide quality products or services, keeping customers satisfied, generating continued sales, and making a profit. Customer happiness is crucial to business longevity, but businesses can’t always continue to offer the same products and services at the same price they did five years ago if they want to see their bottom line grow.
As a business owner, there comes a time when you need to increase your prices to adjust to rising costs of materials and labor and assure continued profits. One of the biggest struggles businesses have is how to raise prices without upsetting or scaring away customers.
The secret to increasing prices while maintaining customer satisfaction is making sure you do the necessary work up front.
Before you decide to change pricing structure, here are six things to consider and implement.
1. Calculate the true costs in running your business
One of the worst decisions a business can make is to increase prices by guessing what they should be. Guessing increases the chances a second price increase will follow the first in a short timeframe. It is essential that businesses take the time to review costs and project future costs, so you know exactly how much you need to increase prices.
2. Understand the real value of what you offer
If a business strategy is focused on cost or being the lowest priced in the industry, they will quickly put their company out of business. Instead of focusing on what the competition charges, focus on uncovering the value of your services. The value isn’t what it costs you to deliver services or make products. Value is how much something benefits your customer. For instance, it may cost $25 to manufacture a product, but if that product saves a customer an hour of their time daily and their time is worth $50 an hour, the value is far more.
3. Offer existing customers grandfathered pricing
Showing good faith by offering existing customers grandfathered pricing for a specific timeframe shows that you aren’t in the business solely for making money. You care about their well-being and want to give ample time to adjust their pricing strategy in preparation. Businesses will find that more customers are willing to stick it out when the business considers their clients financial well-being too.
4. Gather feedback on price changes
Gathering feedback on price changes helps you understand how customers will react once they go into effect. If during the research and testing phase, you learn that customers are more price-sensitive than previously assumed, businesses can restructure how they will release the change. Considering customer reactions is a crucial part of during every step of price changes.
5. Give customers plenty of notice
Whether customers are driven by cost or not, they are more likely to leave if you provide little notice about the increase. It is a good business practice to notify customers through a letter at least 30 days before the change takes effect. The message should also provide some insight into why the increase is necessary and the company’s continued efforts to make improvements for customers.
6. Understand what you want
Finally, businesses can’t properly raise prices without knowing what type of business they want to be perceived as. This includes having a profit goal. When a business knows what they want to profit monthly, quarterly or yearly, they can increase prices accordingly the first time. It is also crucial to know how you want to position your brand. Do you want to be the most expensive or cheapest?
One of the best pieces of advice we can offer businesses is to understand the full worth of their product or service and how it helps change your customers’ lives. If you rely solely on price in your marketing and sales strategy, you will only attract customers that care about price. Instead, focus on the benefits or value and price increases won’t seem as significant when the arise.