“Should we raise prices?” This question has crossed the collective minds of many entrepreneurs. However, with it, more questions arise such as, “Will we alienate current customers?” or “Will price increases negatively impact our sales revenue?”
Setting prices for products and services is no easy feat. However, developing the best pricing strategy for your small business can lead to tremendous benefits. So, is there a way to raise prices without losing customers or sales? Entrepreneurs weigh-in on the debate:
1. It’s all about the value equation.
“Perceived value is a more powerful price indicator than cost or competitive product prices. If you can clearly and logically demonstrate the value of your product or service in a way that directly influences the bottom line of your clients, you will not only avoid losing clients, but you will also gain their respect for valuing yourself and your business in the process.”
2. Focus on your ideal customers.
“In most businesses its common that 80% of revenue is generated from 20% of top paying clients. So, the point of raising prices, is to weed out the ‘headaches’ from the 80% of your clients that are only generating 20% of overall revenue. Jay Abraham’s strategy of preeminence states: if you raise prices, depending on the quality of service you already provide clients, you may not even need to make much improvement in quality internally in your business, but externally your brand perception and quality will rise with the price you charge. Businesses don’t survive on discounting, they survive on raising prices. It’s counter intuitive, but it works.”
3. Be transparent about price changes.
“Be transparent about why you’re raising prices, whether it’s because of higher pricing on raw materials, increased overhead, or a desire to expand service offerings. Reach out to influential customers and the media before you actually raise prices and explain your situation openly and honestly, so they can be on board and provide support when others may react negatively. When they recognize that it’s a necessary step to continue providing them with quality products and services, they’ll likely remain supportive and accept the new pricing model.”
4. Request customer feedback.
“Raising prices without losing customers or clients comes down to connecting with our clients on a human-to-human level. We explain very clearly why our prices have gone up and then ask them if they feel the price increase is fair or not. If they do not agree that the price increase is fair, we ask them why it is not fair and what they think a reasonable price would be. Because we have very fixed costs, both material and labor, our price increases are very clear and nearly all of our customers agree the level of service we provide is well worth any price increase we may have.”
5. Increase perceived value along with price.
“Increase the perceived value of the product or service along with the price increase. The goal in any pricing structure is for the customer to think they are receiving more in value than they are paying in cash. Just because you increase the perceived value does not necessarily mean your production cost must increase. Even if your production cost do increase slightly, your net profit from the price increase should add to your bottom line.”
6. Aim to keep the ‘tire kickers’ away.
“Explain to them that operation costs have increased, including providing the best quality services. Let them know that this causes the increase in prices for services. Clients who understand will be okay with the increase. I haven’t lost clients due to increased prices; however, it does keep the tire kickers away. Clients who value [your] services don’t care about the price.”
7. Increase value prior to price increases.
“I’ve attempted several methods via trial and error. My single most effective method has been to slowly provide more value (i.e. email newsletters and or providing a little extra to every consultation) months before raising prices; combined with gradually phasing out older material and models to freshen [customer] perspective’s. Make the relationship feel and look as though there has been a progression.”
8. Retain customers that leave after price increases.
“While some clients might leave no matter how you [position] your increase in prices, many of those clients will return once they’ve seen how much they miss your services or product. As long as you are graceful when they discontinue services — wishing them well and suggesting you’ll be delighted to [possibly] work with them again — you’ll find that you can retain many of those clients, just with a brief break in their retention of your company.”