How to raise prices without losing clients
By Julian Harlow
The need to periodically increase prices is an inescapable but thankless task for all businesses. The downsides for owners include the potential disruption to relations with existing customers and giving rivals an advantage in the competition for clients. However, an even greater danger is ignoring the need to cover the growing costs of your business.
What does your business need?
The first thing to consider is why your customers come to you, and for most small businesses the answer will not be that you provide the lowest prices. While focusing on price is a valid business strategy, it is one that requires sufficient scale to make the slim margins produce a worthwhile return. Instead, small businesses attract customers by providing value in other ways, ranging from convenient locations to expertise in particular areas, or simply the more personal service that small businesses can provide.
While considering resetting your prices, you can also look at changing the value proposition you are presenting to customers. Breaking the link between the old product or service and the new by improving or expanding aspects of your business offering, even if a token addition, can help your customers avoid focusing solely on the new price rather than the value they receive.
You can also look at raising prices for only some items or varying price rises across your range. This can allow you to consider the price sensitivity of each service or product as well as avoid any appearance of price gouging. Although lifting your profit margin is needed if your business is to grow and not simply survive, behavioural economists have found that customers who perceive a price increase as having no other purpose than lifting profit margins view the change as a loss imposed on them and unfair.
Communicating price rises
Once you have decided the new prices and/or range that will be put in place, you must let customers know well in advance. Communicating the coming changes not only helps to maintain trust between your business and customers, it will also provide an early warning of potential issues either with your proposed changes or with particular customers. If an important client queries the increase, you may be able to find out why and work out a customised solution.
Your business should also have a simple argument for why you are raising prices. This should be simple not because you are attempting to avoid questions on the change, but so your customers receive a clear, consistent answer no matter who they ask in the business. If a customer then wants to take up the issue with a manager or yourself, a more constructive discussion will come from you both starting on the same basis.
Having done everything you can to provide new prices that are based on increasing value for customers and informing your customers in the most constructive way, it's likely that some customers will still decide to move to a competitor. While the loss of customers is always disheartening, it can allow you to focus on those clients who are willing to pay for the overall value that your business provides.
Increasing prices is certainly not the easiest task small business owners must undertake, but if done with care it can strengthen your understanding of customer needs and help your business focus on its strengths.