How to Raise Your Prices in Your Business Without Losing Customers
A problem faced by most businesses at some point in their history and a challenge for some is how to raise your prices.
This is a difficult question for many entrepreneurs or business owners, as they are worried about putting their prices up, for fear of losing customers. However, if you need to make changes to improve your bottom line and to grow your business, putting your prices up is one way to achieve this.
The decision to raise your prices, and charge your customers more for your products or services is a tough one, and has many ramifications. Which is why at Bowraven, we have spent time putting together a free business tool. This free tool looks at the impact of raising your prices. Our free Price Increase Calculator Tool looks at the impact on your business, of any price increase, but before you make the change, and demonstrates how many customers you could lose, with the chosen price increase, and be no worse off as a result.
However, if you could increase your prices, whilst at the same time as keeping all of your customers, this free business tool will also show you how much you’d improve your gross profit margin. In most cases, if you managed to achieve this, would mean that any increased profit would all be straight to your bottom line…“so how to raise your prices without losing customers is the challenge?”
Over deliver and under promise first…Make sure you demonstrate value you provide by over delivering first, before you increasing the price. One of the top reasons for customer dissatisfaction is late delivery. But if you do have problems with delivering on time, always keep your customers informed, as they will see that you are working with them.
So the decision of whether or not to change your prices is not just about how much to increase your prices, but it is also about how you accomplish the change…you need to make the change without alienating your customers, if at all possible.
Raising prices can revolve around the timing of the change. How your customers react to any price increases, will be affected by their perception of the value inherent in what you are selling. Their reaction will also be dependent upon the competitors within your industry, and the relationship you have with your customers, and how good your customer service is.
So here are a few considerations to take into account when you are working out how to raise your prices:
Decide how much to change your prices by
Having a tool to look at your price increases, can help with this question, but the question still remains…do you effect the increase all at one time or at different times? It might be a good idea to raise your prices gradually and in stages, rather than all at once.
If you have a business which is fortunate enough to have very little competition, or that has been overwhelmed by popular demand and has a huge order book, a price hike may not be as big of a problem. A price increase may also be necessary in order to slow demand down, in order for the company to cope with demand. However, this can sometimes lead to “Price Gouging“, which is not seen as good practice, and is referred to when a seller spikes the prices of goods or services to a level which is much higher than is considered reasonable or fair, and is considered exploitative.
Sometimes businesses might need to increase the prices they charge, as a result of a major increase in a key supplier cost, and in order to remain profitable, a price increase is inevitable and necessary.
You can always give a lower priced option…This lets your customers decide and helps them focus on value by giving them a second, lesser priced option…for example airline tickets range from economy through to first class, where customers choose the service level they want and how much they are prepared to pay for that service level.
If your business sells more than one product, you might want to consider raising prices on some items, whilst leaving the others at the same price. Gage the reaction of the first increases, before going ahead with your other rises. By doing this you are spreading the risk, or actually you are reducing the risk to your business, and you could use the Price Increase Calculator Tool each time, assuming you have a detailed breakdown of your numbers for each product line.
It might be that you have a less of a price hike, or keep the price the same, for your headline products, whilst increasing the add-on’s by much more, whilst at the same time improving your customer service levels, so that customers are more than happy to pay a higher price. Car dealers, for example often discount the car itself, whilst increasing accessories like metallic paint etc.
Choosing the right time to make the price change
Once you have decided that a price rise is going to happen, then you must pick the right time when to do it. So for example, if your business is seasonal or has some sort of cycle to it, you could use this natural cycle to effect your price increase.
You want to raise your prices at a time when you are less likely to meet resistance. You must also keep an eye on your competition too, as what they do with their prices may affect how you can change your prices. So for example, if they are lowering their prices, it may not be a good idea to raise yours at that time, without first providing something else to give to the customer in return. If might be that you have just significantly improved your product or service offering, thereby offering a far superior product over your competition, which will justify the higher price.
Never apologise for the rise in prices, but do explain and be open and honest…However, a very good move would be as part of the explanation that your customer service levels are going to improve, or as said in other parts of this article, product or service offering will be upgraded. You can briefly explain how the higher price is going to allow you to better serve them and they will hopefully stay with you.
An example of where retailers increase their prices (although these days not so much) is around Christmas time and then immediately after, they reduce them for the Boxing Day and New Year Sales. Another example is holiday companies that hike their prices during school holidays, to take advantage of the demand from families with children.
So it is a good idea to raise prices at a time when your product or service is in demand, rather than when it is not.
Change the product or service offering
The price that someone is willing to pay for your product or service will be based upon a number of things, as the price alone is not what drives the sale.
With any product or service, it is the perceived value, or put another way, the price that a customer is willing to pay is linked to how they value your products or services compared to the competition or other items that are similar. It is the value that customers attached to what you are selling.
A good way to explain this one is if you look at either designer clothing, or expensive vehicles. Certain people like to buy designer clothes or very expensive cars, so for example a Bentley or a Rolls Royce still does the same function as a Ford or a Nissan, but the perceived value is that much higher for a Rolls Royce.
Add Features to your products or services before you raise your prices…When you improve your products by adding more features, and therefore add value, this gives you a reason to review pricing with your clients.
You could decide to change your value proposition so that your customers are even happier, whilst keeping your prices the same. But instead you could use this improved value shift to increase your prices, as by improving your products or services, will have your customers re-evaluating what it is you are selling.
Increasing your prices it not necessarily the only way of improving your bottom line, as another more crafty way of changing your service offering is to change the size or quantity you are selling, whilst at the same time keeping the price the same. You could also change the actual content of what you are selling, so for example if you are a bakery, you could reduce the meat content of your pies, thereby reducing the cost of production, assuming the meat replacement is of a lower cost. However, do be careful with this type of change, as this alone could alienate your customers.
You could, for example wrap this change up with going down the healthy route, by replacing some of the meat content with lentils, which are both cheaper and provide a more healthy option.
If you are agonizing over a price increase in your business, I hope this article has helped. I do recommend that you download our free business tool by going to our “Business Tools” on the menu above or by clicking this link…Price Increase Calculator Tool.
Knowledge is power when working out how to raise your prices…review the potential impact on your business of raising prices before you go ahead. Use our free business tool Price Increase Calculator Tool which will help you in your decision process. And here’s a video showing the tool:
As always thank you for taking the time to read my blog and if you like what you’ve read, please share it with others.