It’s a touchy subject: price increases. Rising costs stemming from inflation, supply chain shortages, wage increases, or the cost of raw materials are forcing many businesses to raise prices. The way a price increase is communicated can make all the difference in how customers react.
How do you determine if a price increase is necessary? If so, what’s the best way to communicate this change to your customers? Following are some best practices that can avoid outrage and promote understanding.
Inflation and wage increases are costs that are unlikely to go away any time soon. On the other hand, the higher cost of a key ingredient may be avoidable by working with a new supplier. Explore other options for improving or maintaining your profit margin before turning to a price increase.
Once you’ve determined that you must implement a price increase, consider the various strategies open to you. And remember: finding new customers costs far more than keeping the ones you already have.
You can raise prices across the board to everyone at the same rate. This is the most common method. Some businesses create a regular schedule; for instance, an annual price increase is usually looked upon as standard policy and may even be part of a contract.
Another strategy is to only raise prices to certain customers. This can be embedded in choices your business offers, like pricing tiers or packages. You give your customers the option of a larger increase paid over a longer period of time or a shorter, one-time price increase.
It is important to get creative with your pricing strategies. There are innumerable ways to structure a price increase using variables like terms, billing, rates, and incentives. You may have used some of these in the past. Perhaps now is the time to resurrect one or more of these practices.
The option you choose will depend on several factors. Consider how much additional revenue you need to ensure a healthy profit margin and cash flow. Investigate what your competitors are charging and if you’re at risk of losing customers to other businesses.
Once you’ve decided on your price increase structure, alert your staff as to when it will be implemented and how employees should deal with any unhappy customers.
Next, tell your customers. Contact them directly with a letter, an email, or a phone call. Explain the reasoning for the price increase and emphasize the benefit for the customer. Whether it’s continued quality, the same service levels, availability, or something else, the benefit is how to get customers on board.
Being transparent always makes your business more trustworthy and authentic and sets the stage for a customer to willingly justify paying that higher price.
It’s a great day in Emporia!
“Let’s Talk Business” is a weekly column of the Emporia Area Chamber of Commerce and Visit Emporia. The mission of the Chamber is to be proactive in creating an environment for business and community success, guided by the vision that positive attitudes promote positive actions. Contact us at 620-342-1600 or email@example.com and visit our website at www.emporiakschamber.org.