Energy, raw materials and wage bills are just some of the sharp increases in operating costs businesses are having to deal with right now.
Headlines such as inflation hitting a 30-year high and average business gas bills increasing by more than 250% mean that after a punishing few years due to the coronavirus pandemic, companies are once again facing external pressures that are beyond their control.
To deal with the impact of these rising costs, many businesses have been forced to consider raising their prices. A survey in February 2022 by the British Chambers of Commerce found 73% of firms were increasing prices, with 62% citing soaring energy bills as the main reason and 63% blaming increased employee salary costs.
Raising prices is never an easy decision but in these unprecedented times, it might be a move you need to make.
So how can you increase your prices and keep the loss of customers to a minimum? This guide outlines some key tips for you to consider.
Understand your costs
Before you make any changes to your prices, you need to ensure you fully understand the exact costs that you are having to deal with and how they are affecting your business. This will help you develop a strategy for dealing with it and work out how much you need to increase your prices or whether you have other options such as securing external business funding.
Employing the services of an accountant can help you get to grips with understanding your costs and help you decide what you need to do.
Study your competitors
In the current climate, if your business is facing rising operating costs, your competitors probably are too. Investigate their prices and see if they are increasing them. If they are, find out by how much. If most businesses in your sector are putting prices up, your customers are more likely to accept any changes you make.
Segment your customers
Deciding which customers are likely to be less sensitive to a price increase can help you make targeted decisions.
Customers who buy big value products or services may be one such group because as a percentage of the overall price, a price increase is less of an impact than for lower value items.
Corporate customers who are not spending their own money and use a budget provided by the business they work for may also be less sensitive to a price increase as they may be more focused on the result of the service or products you provide them with.
Communicate with customers
If the first time an existing customer hears about a price increase is when they receive a bill or visit your website to make a regular order, it will likely not go down well. It’s much better to be transparent and communicate openly with your customers in advance of a price increase.
Be honest and tell them the reason why your prices are increasing. The UK’s cost of living crisis is affecting millions of people so they will likely be well aware of the increased pressures on businesses. Make it easy for customers to get in touch if they have any questions.
Explain to customers that to maintain your existing levels of quality, you need to raise prices due to increasing operating costs that are impacting on your business. Emphasise factors that customers particularly value such as your customer service or speed of delivery. This can help convince them to not switch to a competitor business.
Start with new customers
In these times of particularly high costs, many businesses need to act urgently and that might mean raising prices for all customers. However, some companies you may be able to focus on new customers first who are more likely to accept the new price because they are new to your business.
- if you run a service business, you could begin to increase your hourly rate to the next set of clients.
- if you have a product business, you could keep current prices for existing customers or subscribers to your email list but charge a higher price to people who haven’t bought your product before.
- if you operate a subscription business, you could raise the subscription fee or encourage new customers to join by a certain date to pay the current price before it increases.
If a significant number of new customers are happy to pay the increased price, you’ll know that you can charge more for your product or service. You can then get in touch with older customers explaining you haven’t raised your prices for a while, but you now need to do so due to the pressure of rising costs.
Add extra value
Providing something extra that doesn't heavily affect your profit margins but delights your customers can help soften the blow of a price increase. For example, service businesses could provide eBooks with relevant educational content and an electrical products company could offer a free extended warranty.
You might also be able to partner with other relevant businesses and bundle together your products or services with theirs which customers are willing to pay more for.
As well as making your existing customers more amenable to a price increase, providing extra value could also help to attract new customers.
How TaxAssist Accountants can help
The current times are very tough for many businesses and hiking up prices might seem like a bad decision given that millions of people are having to tighten their purse strings.
However, if you do it right and you communicate authentically, you might be surprised at how many of your loyal customers are willing to support you.
TaxAssist Accountants can help you with your cash flow management. Contact us to find out more about our services and to book a free video or face-to-face consultation.
Date published 12 Apr 2022 | Last updated 13 Apr 2022This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.