When you have finally reached a common ground where both you and your customers can live with your current prices, something will rock the boat. For a variety of reasons, you may find that you can no longer make a fair profit at the prices you have. You have to raise prices! So you think about how you’re going to do it without losing all your customers. As the sweat builds on your forehead, you realize that you just have to do it, and that’s it.
Most of your customers will expect prices to increase from time to time, if for no other reason than inflation. A few customers may ask why you raised prices, and for those customers a short simple explanation should suffice. Being upfront and out in the open with your customers is always the best approach. Chances are you’ll have very little, if any, lost business, so relax and do what’s necessary. Your competitors may be considering price increases and will follow as soon as they see yours.
Here are some reasons why you may need to raise prices:
- Increased manufacturing costs
- Higher payroll costs and employee raises
- A raise or bonus for yourself
- Desire to increase your profit margin
- Rent increase
- Higher delivery costs
- Increased utility costs
- Higher cost of raw materials
- Higher advertising rates
- Increased postage rates
- Increased insurance costs
- Increased selling costs
- Increased supplier costs
- Increased cost of employee benefits
- Necessary renovations to your office or store
- Increased prices from your competitors
- Increased taxes and licenses
- Higher food costs (applicable to restaurants and food-service establishments)
- Necessity of hiring additional staff
- Necessity of adding new displays
- Increased interest rates on working capital loans
- Product upgrades or enhancements
- Addition of more services
- Offering a better guarantee
- Excessive returns or spoilage
Now that I’ve stimulated your mind, you can probably think of several other reasons to increase your prices. Have you overlooked some of the above motives, and should you start working on your new prices today?
When you decide the time has come to raise prices, consider what other costs will increase within the next six months. It’s better to have a bigger boost now and then wait at least six months before the next one than it is to do two smaller increases. Too many smaller increases done too often tend to irritate buyers and stick in their minds. If you increase your prices only twice a year or less often, people tend to forget about the first increase by the time the second one comes around. Your increased price will soon become your regular price in their mind. You may even consider adding
2 to 5 percent extra to your increase to cover short-term future cost escalations. This might allow you to wait longer before you need to increase your prices again.
Before you start charging your new prices, plan ahead. Have new menus, literature, price lists, or catalogs printed and ready to use, and don’t forget to update your website. Don’t worry about using up all the old literature; just recycle it. You don’t want to distribute anything with the old prices after the effective date of the new prices—doing so will only serve to remind your customers that you just raised prices.
You may want to consider printing catalogs without prices and then inserting a separate price list that you can change easily. This will save you from wasting all those expensive unused catalogs when you change prices.
If you have a lot of stock on hand or it’s a slow period, you can promote or advertise that a price increase is coming to promote some quick sales now. Give the effective date for the new prices and notify all of your regular customers so they will have the opportunity to buy at current prices. Once the new prices take effect, there should be little or no resistance from customers because you gave them ample notice and a chance to stock up before the increase.