Remember the last time a supplier sent you a price hike letter? You probably shrugged and accepted it without much thought, didn’t you?
If you’re a business owner, you’ll probably be acutely aware of your own reaction to price increases when considering whether or not to raise yours.
If you get concerned or annoyed at price increases, that might stop you increasing your own prices, but that’s totally the wrong thing to do.
You want financial security and happy customers, right? Well, if you don’t increase your prices when you need to, you won’t have either.
Let me explain.
Why you should raise your prices
There’s a huge amount of psychology at play when it comes to pricing.
A study by Cornell University in 2009 discovered that there was an 8% increase in spending when a restaurant decided not to place the dollar sign before its prices.
Does that make the prices themselves irrelevant? Are people just inherently stupid?
Of course not! Price simply reflects value. If you see a dish that takes your fancy on a menu and there’s a number next to it which seems reasonable, you’ll order it.
Now, occasionally, the restaurant owner is going to increase those prices because if she doesn’t, the value of those dishes will begin to reduce.
It also demonstrates confidence in what that business is offering its customers.
The fundamental fact remains that while your services are for clients, your business is for YOU.
If you don’t raise prices, you’ll work longer for less money, and that reduces your ability to obtain and harness the three Fs:
- Financial security
When should you raise your prices?
“You know it’s time to increase your prices when a prospective customer asks why your prices are so low in contrast to the rest of the competition.”
Those are the words of Kristin Kimberly Marquet, from branding company Fem Founder, during an interview with Forbes.
Don’t count on them, though. While you may occasionally receive feedback like that from a client, you typically have to be far more proactive when it comes to raising your prices.
In my experience, it’s time to raise you prices when something happens in your clients’ world. It could be an event which raises the value of your product, or a story which signals the need to change.
It may even simply be that you increase your prices at set intervals (for instance, ever 12 months) to cover inflation, increased costs, and an evolving market.
However, you’ll KNOW when it’s time to increase your prices. It’ll just feel right. For instance, the ‘event’ could be a new partnership that’s needed to bolster your product’s functionality, but which increases your overheads.
How do you explain price increases to customers?
Firstly, some good news - if you’re thinking about potential new customers, there is no such thing as a ‘new’ price; the price they see is the first price they’ll pay!
In that instance, they don’t need to know the reason or story we discussed above. Don’t get wrapped up in that for new customers.
For existing customers, you simply need to explain, confidently, and without any fluff.
Put your best foot forward and remember you don’t need to justify the price increase. “To ensure you continue to receive the awesome service you’re used to, our new price will be £XXX from XXX date.” That’ll do!
Make it clear that it’s just a ‘change’, rather than an ‘increase’ - remember, this is all about psychology.
Whatever you do, make sure your communication on the matter isn’t focused on the price. Link through to some content which explains the outcome and improvements the client will see as a result of the change. Make sure they see the value and the continual benefit of working with you.
How do you start raising your prices?
One of the most important things you can do for future prices rises is to build them into your agreements and contracts from the start.
This illustrates that they’re INEVITABLE. It’ll make any future price increase much firmer and less of a surprise. It also further bolsters the confidence you clearly have in the business and its products.
If you intend to raise prices at set intervals each year, make it ultra-obvious on your contracts. “There will be an X% increase every six months”, is far more confident on your part than, “We’ll review your pricing occasionally in the future”.
What are you afraid of?
When you find yourself pondering over price rises, there’s usually something else at play.
What are you worried about?
Is it that clients might head off to find a cheaper alternative? Maybe you’re worried that you’re being greedy?
But if clients do wave goodbye and find a cheaper alternative, what does that say about the alternative? What if they return in the future when they realise what they’re missing out on?
You can get over this fear by making the conversation about what the client wants and needs - not about the price. It just turns out that in order to get what they want, they’ll need to pay a little more.
I’ll leave you with this thought: if you raised your prices, would you buy your own services at the new price?