How to Raise Prices Without Hurting Your Business
With prices for all kinds of essentials going up — gas, heating oil, health insurance — it may be time to consider raising your company’s rates or profit margins in 2012. Customers often bristle at paying more for goods and services when they’re accustomed to a specific amount, but you can raise prices without hurting your business if you’re careful. Here’s how.
- Don’t be afraid to lose the cheapskates. Let’s say you’re still giving a heavy discount to a client who supported you in the early days. If the relationship is important to you, it may be worth maintaining some type of price break. However, if the client now takes you for granted or you don’t find the work rewarding, don’t hesitate to send a letter stating your new rates. If you lose the client, so be it — you’ll build a more profitable business by finding a higher-paying replacement.
- Raise rates incrementally. If you went to the supermarket and found out that the gallon of milk you recently paid $3.50 for was suddenly $7, you wouldn’t be pleased. Your customers won’t appreciate similar hikes in your prices, either. When raising your rates, do it in small increments, even if you boost them by 2 percent per month for six months to get to your ideal fee.
- Add value with higher prices. Imagine that you’re a bookkeeper who maintains accounts for various small-business clients, and you’d like to raise your rates. Rather than billing a higher hourly rate, consider offering your services through several “retainer packages” that include value-added services, such as training a client how to use invoicing software. You’ll be able to boost your hourly rate without your clients knowing it, and you’ll provide them with additional services they’ll likely find useful.
- Alert people to upcoming rate increases. Your customers or clients may not be put off by rate increases if you provide them with advance notice and explanation of the new prices. If you run a café, consider posting a notice on the front door telling customers that, due to the rising cost of eggs, breakfast prices will go up by 50 cents next month. If you’re an accountant, you might explain that, as you earn more credentials, you plan to raise your rates to reflect your expertise. Keep all communications strictly professional: Rising costs and additional education are acceptable reasons to raise prices; the fact that you’re supporting an aging parent (or that your spouse is suddenly out of work) is not.
Kathryn Hawkins is a business writer for Intuit and is passionate about solving small business problems.