The annual inflation rate surged to 6.2 percent in October of 2021, the highest rate since November of 1990. However, the United States Inflation Rate is projected to be around 2.3 percent in 2022 and 1.9 percent in 2023.
You’re asking yourself if it’s time to raise prices. The answer is it depends. Rising costs are uneven across industries. Some industries have even seen steep price declines. Supply chains have been crippled because of a shortage of labor and raw materials.
You’ve worked hard to take care of your customers. Look at all the external factors affecting your business and pricing model. If your product or service is worth a lot more than you’re currently charging, then it might be time to raise your prices. Here are some tips to help you if you decide to increase customer prices.
Tell your customer why you’re increasing prices and be honest. Some customers are always going to oppose price increases. The best way to win your customer over is with data. Tell them why you need to increase prices. It’s hard to argue the evidence when you can see raw material and labor costs are going up. You may have also added some benefits to your product or service. Be sure to highlight these add-ons and how they help your customer.
You will find that your customers are willing to pay more for products and services they deem worth the cost. If you are using sustainable methods or materials, let your customer know. This is important to many younger people. You want to make sure you show your customer your value.
Communicate clearly why you’re increasing prices. Never raise your prices without first telling your customer. You may think you can pass on a small increase and they might not even notice. They will notice. And they’ll be more upset because you didn’t tell them about it ahead of time. Be thoughtful about sharing bad news with your customers. Think of your customer – can you send a letter explaining your price increase or do you need to make a personal phone call. Your customer will respect your decision and position if you take the time to explain why it is necessary.
Provide your customer with options. We’ve all seen that the consumer-packaged goods industry often chooses to reduce the size of the package instead of increasing prices. This is one option your customer may be interested in. You can also consider pricing tiers. Maybe some of your clients don’t need all the services that you offer. They may be able to save money with tiered pricing. You could also look at the value of your customer and start a VIP program which gives your highest value customers a rebate for doing more business with you.
Make price increases a habit. This will lead to more incremental pricing. You should consider an annual review process and let your customers know that you will be doing this every year. This annual process is a good business practice. As we all know some vendors and some customers are more expensive to do business with or serve. Just because you review prices every year, doesn’t necessarily mean you need to increase prices. You’re just doing your due diligence on your expenses.
As part of your annual review, you should consider eliminating unprofitable products and services. Look at what add-ons you may want to consider that will add value for your customer.
Consider dynamic pricing. Dynamic pricing is the practice of varying the price for a product or service to reflect changing market conditions. Several industries already use dynamic pricing like airlines, hotels and ride share services.
Lastly, review your pricing structure. There are many different types of pricing structures and you should find the one that works best for your business in your industry.
We know it can be difficult to determine when and if to take price increases. If you’d like help reviewing your pricing strategy or developing communication pieces to explain your recent price increases, we’re here for you. Outlook Business Solutions offers an array of marketing and sales services from strategy planning to copywriting and public relations. We’re here to help you grow your business and inspire your customers.