The unfortunate reality of things right now is that businesses across the board might need to raise their prices. Inflation’s increasingly pervasive effects, as well as continued supply shortages, demand that pricing models change – or at least be re-evaluated.
And while everyone “gets it” that prices are rising everywhere, the customer still may be unhappy about it… and tempted to seek out cheaper alternatives.
But before I start on today’s installment of my inflation series, I want to mention a couple things:
First, in the IRS’s recent tax tips email, they dropped a quick reminder about business-related travel deductions. If your business is incurring travel expenses, it’s good to know what is and isn’t permissible from the perspective of dear old Uncle Sam.
Also, did you know that the Small Business Digital Alliance (part of the SBA) has this great resource, chock-full of free tools and resources from Fortune 500 companies to help small businesses like yours grow by going increasingly more digital?
Needing guidance on many aspects of your Hampton Roads business is something we have heard over and over again. And of course, even with all those free resources, sometimes you just need a little “face time” from a trusted advisor. Set up an appointment if you need some help thinking through price raising, digital business, etc.:
Because after all, raising prices can be so tricky. Keeping customers in the process … even trickier. We’re all feeling the strain of increased prices everywhere, yet you can’t avoid shifting your pricing model to accommodate for what we’re seeing.
But (GOOD NEWS) … there is a way you can do it and still retain many of your customers…
The Art of Raising Prices for Hampton Roads Small Businesses
“There is no victory at bargain basement prices.” – Dwight Eisenhower
Prices are on the rise everywhere right now. What about yours?
From just a few pennies to outright sticker shock, hiking prices is one of the quickest paths to losing customers. But you’ve got ends to make meet, too.
Our inflation series continues with one of the most pressing problems for businesses today: How much you need to increase your pricing models – and what to think about before you do.
Worry and response
Current inflation is 8.6% year over year, a seemingly endless upward direction that worries most businesses. Almost nine out of 10 have told surveys that they’re also already seeing the hit in higher expenses such as supplies and services, some by as much as 50%. Throw in employees probably wanting above-average raises and you’ve got a compound problem.
Businesses’ response? Not hard to guess: Almost nine out of 10 small businesses in one survey said they had to hike their own prices – and that’s on top of the hefty percentage who’d already raised their prices since the pandemic started.
The key question is, raised prices by how much?
Almost half of businesses had to increase prices by more than 20%; almost half said they kept the increase to no more than 15%. Some companies that haven’t increased prices in years have had to pass along furious new costs to potentially furious old customers.
Take a hard look
Before you just decide to pin down your average higher costs and just base your markup on that across the board, take a harder look at your operation and your pricing model.
Do you stand out? Yes, as a fellow small-business owner, we know it’s a hard question to ask yourself but re-assessing your pricing just starts with it: What makes you so special? Why should your customer pay you? Are your services unique?
Special is special. You can increase the price of specialized or exclusive products much easier than you can those of commodities, which customers can easily find replacements for. Special products and services will bear the weight. The same holds true for customer loyalty. How often do your customers say they’d never shop anywhere else? (How often do they prove that, too?) A loyal customer will pay more – just don’t think you can push that forever.
Competition. What’s their price point and range, and how does it compare with yours? If yours is higher, don’t automatically assume that you have to match your competitors’ deal. Do you offer customers resources that the other doesn’t, for example? If you don’t, can you add those resources economically? (As you can imagine, it’s critical to answer those honestly.)
In with the new. What do you offer that draws in most of your new customers? Raising those prices should be a last resort. You want to increase income from your premium, extra, or add-on items. Your customers don’t use those until they’ve become more loyal to your brand – and become customers who will put up with a price increase longer before they think of leaving you.
You do still want to give special attention to these products and these customers, though (more on this below).
Go slow. Tempting though it is, jacking up prices across the board isn’t necessarily your best move. And when you do, raise prices gradually. As we mentioned, it’s best to raise prices on premium products and services first. But you can tweak both the offerings and the pricing to make them more palatable.
Tell it like it is. Be upfront with customers about price hikes – give some clear reasons. Much as people hate bad news, they hate nasty surprises or being kept in the dark more.
Bundle. Combining multiple products at a higher price point, giving special warranties, comping higher shipping costs, offering more services or rewards for subscriptions: They all bring more money through your door by having the customer buy more, just not a la carte. Do be careful about devaluing your brand with too many discounts.
Improve your customer service. Next to the sale itself, this is your pivotal touchpoint with a customer. Invest in it, and you’ll solidify your customer base generally.
Change marketing. Some customers will pay more for a product or service they perceive as being worth more. Your marketing might need to start highlighting your value, or you might need to go after new customers who don’t always think about price first.
Remember, raising your prices is just part of business. You’re looking for that balance in these troubled times.
And we’re here to help find it. If you need some help, let’s talk:
You’ve got a trusted Hampton Roads guide in your corner.
Here for you,
Virginia Accounting Services