(866) 509-7199
(866) 509-7199

How to Know When to Raise Your Prices

How do you know when to raise your prices? Small businesses often struggle with where to set their prices from the get-go. You want to charge enough to be profitable, but not so much that you deter people from using your services or buying your products. However, as time goes by and your business builds up its reputation and customer base, there’s going to come a day when you realize it’s time to start raising rates.

Too high of a price increase can break your business, but too low of a price increase can do the same if you aren’t taking into account increased overhead and other costs that you need to cover. So, let’s dive into some key signs on how to know when to raise your prices and then walk through some tips to help make the price change easy on your business and customers. 

How do You Know When to Raise Your Prices?

Typically, small businesses will begin to feel when a price increase could be on the horizon, but a gut feeling might not be enough. Here’s a look at some common signs on how to know when you need to raise your prices.

You Can’t Keep Up with Demand

A long waiting list, an ever-full schedule, and a backlog of orders are all good signs that your business is in high demand. However, you’ll need to evaluate this demand before determining if this alone justifies raising rates.

If you came into the market very low and you’re now known as the “budget provider,” you might only be in high demand because people expect to get your services for much less than your competitors. In that instance, raising rates probably won’t go over well. This isn’t to say that you shouldn’t increase your prices because you probably should, but it means you must recognize that a price increase will drive demand down if people are only choosing you because you offer a lower price.

Meanwhile, if you priced yourself so you aren’t the cheapest, but perhaps somewhere in the middle, a price increase might help you balance demand while still keeping lots of happy customers on your list. Realize that any price increase is likely going to cause a decrease in demand, but that’s just the nature of business. 

Your Overhead is Going Up

If you’re having to hire new employees, rent more vehicles, lease more square footage, or just pay a higher wage, increasing overhead often necessitates a price increase–even if you know it’s going to impact demand.

A lot of small businesses find themselves making this tradeoff: Continuing operating with higher overhead and the same prices, creating a small profit margin, or risk raising rates to get the profit margin near or at where it used to be. In truth, the best decision for your business comes down to your market and the margin that you’re left with if you don’t change your prices.

If you’re facing an overhead increase so significant that you’ll be left with practically no profit, or even negative profit, a price increase is unavoidable. On the other hand, if you can still happily move forward with the smaller profit margin, you might choose to wait out a price increase until you have a greater share of the market. 

Your Customers Tell You You’re Cheap

Have you ever had a customer say, “You’re the cheapest in town!” or even, “I’d pay double for these results!” These may be exaggerations or niceties, but if you’re hearing it often, this is a sure sign that the value you’re delivering is worth more than you’re charging. Likewise, if you never have customers asking for discounts, that’s another hint that you’re giving customers a great deal of value.

Providing customers with value is what you want to do, but you want to do it at a rate that gives you the cash you need to continue growing and scaling up. Chances are if people have remarked that your services are worth more, it means that they are, and you need to consider raising rates to reflect its real value. 

Tips for Implementing a Price Change

The worst thing any small business can do when increasing its prices is lose loyal customers because of a steep, unexpected, or “secret” increase. Honesty is the best policy when it comes to rate changes, so it’s a good idea to let your existing customers know that your rates are increasing, tell them when they can expect the increase, and let them know the reasons why. Follow these tips to make the change easier.

Use Gradual Price Increases

While it is sometimes unavoidable, a steep and sudden price increase is the last thing you want to implement as it’s bound to scare off customers. Instead, try implementing gradual price increases so that you can get from your current rate to your target rate over a specified amount of time, like six months or a year for large increases.

What’s important to remember is that even gradual increases should be acknowledged so customers don’t feel like you’re trying to sneak it by them. At the same time, multiple increases (however small) can make your customers feel like your prices just keep going up and up, so you have to be strategic. 

Reward Loyalty with Discounts

If you’re able to, consider offering discounts to your loyal customers that bring the price down to its previous level. These discounts may be temporary, occasional, or last for a set amount of time, like over their next six months of service.

The discount can help you retain them as a customer, at least for some time longer, while you convince them that you’re worth the increased rate. It will also make them feel valued, which is essential to maintaining relationships. 

Consider Adding a Service Fee

If you’re thinking about increasing your prices because of the increased cost of shipping, processing fees, electricity, water, or other variables, consider adding a service fee instead of directly updating your prices.

The service fee is easily explained to your customers, and they’ll be able to understand that it’s not a result of “greed,” but a result of increased overhead. The great thing about a service fee is that you can also adjust it over time and, if you’re able to, you can even remove it entirely at some point. 

Get the Guidance You Need to Grow

LOLA POS is a merchant advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments. Since 2004, LOLA POS’s payment processing solutions have been delivering tailored solutions, best-in-class customer service, and high-quality service offerings for businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar, or e-commerce, LOLA POS will create the best processing experience for your company. For more information, visit us at our website or call us at (866) 509-7199.

I'd like to be a: