Raising prices is a daunting yet essential task for small-business owners. It’s a delicate balance between maintaining profitability and keeping customers happy. Here’s how successful founders have navigated this challenge and managed to keep their customer base intact.
Emphasize Your Value
One of the most effective ways to justify a price increase is by emphasizing the value your business provides. Ashley Steele, founder and CEO of Obtain Creative, has raised her rates multiple times since launching her social-media marketing firm in 2020. Her primary reason for doing so was to offer competitive pay to her employees and attract high-caliber talent. Steele’s commitment to paying her team well ensures that her company delivers high-quality work, which justifies the higher rates.
Steele advises small-business owners to conduct thorough market research and use data to back up their pricing decisions. “Small-business owners often think there's so much mystery around raising rates,” she said. “If you take the time to do that research and use the data to back up your decisions, you can make really good calls about what you really need to do for the business”.
Communicate Openly with Customers
Transparency is key when it comes to raising prices. Hyacinth Tucker, founder and CEO of The Laundry Basket, a mobile laundry and dry-cleaning service, raised her prices by 5% to 10% due to rising costs of supplies, labor, and fuel. Tucker notified her customers about the price increase via email 30 days before it took effect. “We didn’t want it to come as a surprise,” she said. “We made sure that we were available during that time to answer any questions and address any concerns that people had”.
Being transparent builds trust with customers and makes them feel like their relationship with your business is a partnership. Danielle Langton, a business consultant, suggests mentioning the reasons for the price increase in a positive light. For instance, explain that your business is growing and that raising prices will help you continue to exceed customer expectations.
Improve Your Product or Service
Customers are often more willing to accept a price increase if it’s accompanied by improvements to your product or service. This could mean better quality materials, new features, or enhanced customer service. For example, a restaurant might introduce new menu items or a clothing brand might use higher-quality fabrics to justify the price hike.
Offer Temporary Discounts
To retain price-sensitive customers, consider offering temporary discounts or deals that bring prices down to their original levels. This strategy can help you keep frugal customers while still benefiting from the overall price increase. For instance, you could raise your prices but offer occasional discounts to loyal customers.
Bundle Products or Services
Bundling products or services can soften the impact of a price increase. For example, a nail salon owner who needs to raise the price of manicures, pedicures, and foot massages could offer a bundled service at a discounted rate compared to the individual prices. This approach not only justifies the price increase but also adds value for the customer.
Target a New Customer Base
If you need to raise prices significantly, consider targeting a more affluent customer base. Expanding your target market to include upscale customers or businesses with bigger budgets can help offset the loss of price-sensitive customers. This strategy is particularly effective for service-based businesses like B2B companies, lawn care services, or cleaning services, where customers expect periodic price increases.
Plan Ahead
Before raising your prices, consider your current costs and any potential cost increases in the near future. This proactive approach ensures that you won’t need to raise prices again shortly after the initial increase. Factors to consider include your close/conversion rate, the last time prices were raised, the competitive landscape, and opportunities to incorporate additional value.
Prepare for Potential Backlash
Raising prices will inevitably upset some customers. Be prepared to explain the reasons for the increase, both in person and on social media if necessary. Communicating effectively and transparently can help mitigate negative reactions and maintain customer trust.
