Wondering when the ideal time is to raise your prices? Generally, the beginning of the financial year (after the sales) is a good time to reconsider and adjust your prices accordingly.
This is not to say if business is booming and you can’t keep up with demand that you need to wait for a new financial year to start charging more. In fact, when you have more business than you can handle, this is a big sign that it’s time to evaluate your pricing strategy.
If you’re working in the trades, there may be different seasons where business demand is stronger. Putting your prices up at these times, and getting customers used to a new pricing structure when you have a steady log of jobs booked in, is a smart way to ensure you still have plenty of business when the seasons change.
These days, savvy buyers are shopping around. Many local businesses offering the same products or services try to keep their prices in line with each other, but this strategy is flawed for a number of reasons.
For instance, if you set up your business in a new area and adopt the same pricing as your local competitors, you may find out the hard way that they were struggling to break even due to undercharging. And now, you’re in the same boat.
A wiser approach can be to work on what sets you apart from the crowd, rather than settling for underpricing your worth just to keep up with the competition. Consider your point of difference and the value you bring to each of your customers, and use this as a baseline for pricing.
If you deliberately price your products or services as less than what your competitors charge, you will likely be doing a disservice to yourself — and your industry. Potential customers may assume what you're selling is cheap or of inferior quality. On the other hand, if you set your prices much higher than your competitors, you’ll need to ensure you provide a superior experience in order to gain and retain customers.
Listening to your customers is one of the most important business lessons you’ll ever learn. What they value and what you offer them can make or break your business; it pays to pay attention.
Talk to your clients and find out what they’re looking for, then bring them more of it. Of course, this will often depend on the individual customer and their own likes and needs. Some customers will love nothing more than a good bargain or something thrown in for free, while others may value expensive luxury items or time-saving features.
For instance, if you have a hair salon do customers really value the free glass of champagne? Or would they prefer a complementary hair curl at the end of their cut and colour? When you offer your customer experiences they value, they won’t sweat a price increase because they will see the value in what they're receiving.
Implementing a set of tiered packages is a great way to sell your services and raise your prices. Having multiple price points can help you increase your prices in a smooth manner, while still catering to different budgets and needs.
For instance, if you have a dog grooming business and you currently offer your clients brushing, bathing, nail clipping, and ear cleaning for $60 and you want to increase your price to $75, you could introduce a lower-level package for $60 that includes just the brushing and bathing.
Then you can introduce a mid-level package priced at $75 including all the original services, and a third “full service” option for $85 that includes a doggy haircut.
Just make sure when setting up your price points that you don’t overwhelm your customers with too many choices. Less is often more, so pick three to four packages to implement. You'll also gain valuable insight into what your customers value depending on which price point they choose, and you can use these learnings to grow your business further.
Increasing your prices in small increments over time, rather than in one big burst that might ruffle a few feathers, will help you retain customers. For tradesmen, one strategy to employ is to raise the prices on your least popular services first, meaning that most of your customers won’t even notice a difference.
By adding value in ways that don’t impact your profit margins, like with extra features or packages, you can further enhance the experience of your customers. For example, if you sell different electronic goods, you might opt to provide your customers with a free extended warranty or increase your customer support hours to be more readily available to customers with tech issues. In turn, they will be less likely to shop around.
If you’re re-thinking your pricing strategy or just getting your business started and aren’t sure how to set your prices, read our blog on Retail Pricing Strategies.
Eventually, you’ll need to bite the bullet and let your customers know your prices are going up. It’s normal to feel worried about the impact this might have on your business. However, there are techniques that will make this easier and soften the blow for your customers.
Here are some ways to ensure your customers don’t feel blindsided by your price increase.
It’s quite common to lose some customers when you start charging more for your products or services. If you don’t receive any pushback, it could mean that you are still undervaluing your business. By engaging with your clients and getting feedback, you will get a clearer picture of where your price levels should be.
While it doesn’t feel good to lose customers, it is par for the course, and the extra money you make from the price increase should cover this loss. It’s a good idea to monitor the effect it has on your revenue so that you can plan for future price increases.
Periodically increasing price is inevitable for any growing business. Knowing how to announce a price increase can not only prevent customer churn, but can even buy their loyalty and put your business on a new growth trajectory. For more tips to grow you business, sign up for our Business Blog.