While there are some glimpse of improvement in the economy, truth be told, many small business owners are still trying to make ends meet and keep their business afloat while the economy slowly recovers. At the same time, consumers are feeling the crunch too. So passing along rising costs to the customer seems like a no win situation. So how do you increase prices without harming your small business? There are a few ways.
1) Provide an advance notice. Create a letter letting customers know that prices are holding steady for now, but in 60 days they will be going up. Giving your customers advance warning shows a degree of respect, and softens the blow when you actually do raise your prices. Make sure the letter is transparent, conveys the reason for the price increase (inflation, cost of supplies, etc.), and has a positive feel.
2) Add service tiers. If you are in the service business, such as a beauty salon or computer consultant firm, consider breaking up your services into layers, or tiers. While you may keep the basic rate the same, you can add additional costs for extra benefits. For instance, you might charge a higher rate for 24-hour appointments or faster turnaround times.
3) Raise rates incrementally. If you financial advisor is telling you that you need to raise your prices 20 percent to make a decent profit, and you put a 20 percent price hike in place all at once, you’re surely going to lose customers. Instead, raise prices in increments at five percent at a time, for example, in order to retain more customers.
4) Add value when raising prices. People often make buying decisions based upon the expected value they’ll receive for their spent money. Consumers love getting value for their money, so if you must raise prices consider adding an extra bonus. For instance, a beauty salon owner can add a free bangs cut or eyebrow wax for every third haircut. While this may seem like a free service, when combined with a price increase, you’ll likely still boost your hourly rate. Other ways to add value include adding guarantees, repeat purchase incentives, or faster shipping.
5) Test the price increase with a small random sample. Before implementing a full-scale price increase across your entire customer base, test your price increase on a smaller group to see the reaction.
No one likes price increases, but they are a fact of business — and a fact of life. The way you handle a price increase can either strengthen or damage customer relations, not to mention your business. Know this, and consider the above ways to increase prices without harming your small business