Many Australian small businesses face the issue of knowing when to raise their prices and how this should be done. Raising prices without losing customers is a tricky task that requires thoughtful planning.
How to identify when to rise prices?
When it comes to pricing, you should raise prices when the time is right for your business. You should not raise prices just for the sake of raising them, or you will end up with a shrinking profit margin and potentially losing customers. There are many reasons that a company may want to raise its prices, such as higher raw material costs, increasing fuel or energy costs, or an increase in labour or supplies cost.
You should also consider the quality of your products or services and if they are still worth the price you charge. For example, if you sell apparel, an increase in fabric prices can make your garments unaffordable.
If you are selling services, such as lawn care or cleaning, your customers expect price increases to happen from time to time. You can make your customers more comfortable with a price increase by offering a six-month or year-long contract at lower rates than your current month-to-month rate.
Do you need to raise the prices of everything?
While most businesses will need to raise their prices eventually, not all do so on a regular basis. There are a number of reasons for a business to decide to do so, and it's important to determine what the best reason is for your company to raise the prices of everything you sell.
For example, if you are a clothing store and your fabric costs have gone up because of better quality fabrics or better processing, you could raise the prices of your clothes in order to cover these costs. At the same time, you may opt not to increase the prices on the accessories range of goods as you still have a great profit margin on these goods.
When to tell staff and customers of price increase
When you're planning to raise prices, make sure you communicate that with your staff and customers. Notifying them well in advance will soften the impact of any price increases and maintain customer loyalty.
A good price increase letter should explain the reasons behind the change. The reasons could be anything from the cost of materials to new hires or other factors that affect your costs and ability to deliver quality products at competitive prices.
You can also use this opportunity to reinforce the importance of quality product and service in your business. Informing customers that their high-quality products are vital to your success will help ease any concerns they may have about your decision to increase prices.
How to keep customers happy with higher prices
The best way to keep customers happy with a price increase is to be open and honest about it. It's important to make them understand the reason for the increase, how it will benefit them and what they can expect in return. In addition, you should provide them with a timeline for when the new pricing will be in place. This can help reduce churn and allow customers to make adjustments to their buying plans.
Be sure to communicate your plan with your employees as well as your customer base. The better you understand your customers' needs and expectations, the more likely they will be to stay with your business in the future.
In fact, many experts believe that pricing increases can actually help improve customer satisfaction by increasing loyalty.
Generally, customers are not as price sensitive as you might think. If you have a large roster of loyal clients and new customers coming on board, it's usually okay to increase your prices a little bit to cover your cost increases and make an appreciable profit.
As a business owner, it's important to review your prices on a regular basis. This will ensure that they reflect the dynamics of cost, market demand, response to the competition and your profit objectives.
In many cases, price adjustments are a natural progression of the development and improvement of your products or services. For example, if you add valuable features to your tool or service, it gives you a real reason to revisit your deal terms.
If you decide to raise your prices, be sure to explain this to customers. It can be difficult to keep all your customers happy, but it's essential that you communicate the reasons for the increase in a clear and authentic way.