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Wage pressures, increasing costs of goods, and other financial factors are prompting many business owners to consider price increases. Some entrepreneurs resist this step, fearing it will drive away customers.
The truth is, the way that you position the increase will help shape how customers respond.
Review these tactics to help successfully manage the process.
Exact competitor rates can be hard to find, but online searches, your salespeople, or even your customers may be able to help you piece this information together. Also, look at your online reviews or other customer feedback for information on how the market perceives your pricing. Are you considered a bargain, priced fairly, or premium priced? If your prices are on par with competitors’, consider whether the quality or uniqueness of your offerings justifies a higher price point. If they’re already higher than competitors’, look for efficiencies to lower costs.
The adage “timing is everything” applies to price changes, since your customers may be more receptive to increases at certain junctures. For example, it makes sense for many service-oriented businesses, such as landscapers or snow removal companies, to institute an increase at the beginning of the year or season. For other businesses, budget calendars may dictate optimal timing. Aim to schedule an increase before customers set their budgets, since an after-the-fact price hike could strain their ability to pay.
Give your current customers advanced notice, along with a brief explanation for the price increase. For example, perhaps your material costs have gone up, or you’ve recently added new features that enhance your product or service. If only certain products or services will be affected, make this clear so there are no surprises.
Providing notice can help customers adjust their budgets accordingly. It also may give them the opportunity to buy before the price increase kicks in, which could give you a sales boost.
As you prepare to increase prices, look for opportunities to reinforce what sets you apart from competitors and how you contribute to customer success. For example, a tutoring service might gather testimonials from parents to post on its website or otherwise note its success in helping students raise their test scores. A catering company might highlight the short turnaround time it requires for orders or its commitment to using environmentally friendly supplies. If the unique value you provide varies by customer, check in with your sales or customer service team to key in on what matters most to individual buyers.
Decide whether to provide a lower-priced option for price-sensitive customers, such as a pared-down version of your product or service. For example, if you provide corporate training services, you might create a package with fewer sessions or features for a lower cost. If your offering lends itself to tiered pricing, providing a few options at different price points could pay off. Research has shown that people tend to choose the mid-priced offering, rather than the least-expensive one.
Your customers may be more receptive to a one-time increase than to smaller, more-frequent ones. Raise your prices enough so that you won’t need to do so again for some time. Consider expense projections when deciding how much to raise your prices.
Be sure to thank your customers for their support, and remind them that you’re committed to helping them meet their needs. Communicate that a price increase will help to strengthen that partnership by enabling you to serve them even better.
Raising prices may feel like a big step, but it doesn’t have to be. With the right preparation and communication approach, you can ensure the profits you need while keeping customers loyal.
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