Why Businesses Need To Increase Prices

In 2022, macrotrends show inflation rising globally. Particularly though, U.S. inflation is higher than in other countries. That’s according to a study from Research from the Federal Reserve Bank of San Francisco. And all the buzz about the economy creeping into a recession has businesses facing the price increase pressure.

As the cost of living continues to climb, businesses are finding it difficult to keep up with rising expenses. They already feel the squeeze as their costs continue to climb. Maintaining profit margins means companies have no choice but to pass on some of these costs to their customers. And oftentimes that’s in the form of price increases.

But it’s not just the cost of living that’s putting pressure on businesses. They’re also facing pressure from other external factors, such as the current trade war between the U.S. and China. That has led to a climb in the cost of goods for many businesses. That’s because they must pay more for the materials they need to produce their products.

All these factors are key to one thing– Businesses need to increase prices to stay grounded. While this might not be popular with customers, it’s a necessary step to bring in the bacon.

If you’re a business owner, now is the time to reassess your whole pricing strategy. Here are a few things you should keep in mind. And here’s why you need to do it now.

Do You Need To Announce Your Price Increase?

Price increases can be a touchy subject. You don’t want to anger your customers, but you also need to make enough money to keep your business running.

When it comes to how much you should raise your prices, there’s no one-size-fits-all answer. It depends on your business model and your products or services. You’ll also need to take your competition and demand into account. If they’re charging more than you, you may need to raise your rates to stay profitable.

Don’t make raising your prices a regular thing. If you do, you’ll risk angering your customers and losing their business. Instead, look forward to how much your supplier’s project price increases, and look to absorb a couple of price hikes upfront. 

You can always drop your price to get a sale, but it’s a whole lot more difficult to ask for more later. 

Push the anxiety about your price increase marketing strategy aside. Wizard of Sales® is here to handle all the details with you. Let us put in the brainpower to help you raise your rates efficiently. Book a demo today.

Some Questions To Consider

While you’re deciding whether or not to price increase, there are a few questions you need to consider. These answers will depend on your customers’ and business’s needs.

Which Items or Services Should I Charge More for?

First, pay attention to trading economics, since it’s all about supply and demand. If you have a product or service that’s in high demand but low supply, you can charge more for it. On the other hand, if you have a product or service that’s in low demand but high supply, you’ll need to charge less.

You also need to consider what your customers are willing to pay for your product or service. If they’re not willing to pay more, then raising prices is going to affect your conversions. 

Think about which items or services you’re going to charge more for. You might want to raise the rate on an item with a high-profit margin or charge more for a service that takes up a lot of time.

For example, if your HVAC services are in high demand but the cost of parts and time to complete the service has gone up, you might want to raise your prices. You’ll also need to decide if you’re going to price increase all of your products and services or just a select few. Also, consider charging a premium for unique or hard-to-find items.

How Much Should Prices Go Up?

When it comes to pricing, businesses need to hike up their prices, and for several reasons. With the cost of living skyrocketing and the cost of goods and services on the rise, businesses need to find ways to keep up with these changes. 

But how much should businesses raise their rates? And what factors should they consider before doing so? 

There’s no easy answer to these questions, as each business is different. However, there are a few things to keep in mind when deciding how much to raise rates. You’ll want to research how much of a hike in costs your customers can handle without taking their business elsewhere.

Grocery store giant, Loblaws, will introduce a new President’s Choice product at a low price first to get it in the hands of a lot of people. Once a predetermined number of repeat sales are made, they raise the price to their desired profit margin and wait for the results. If incremental sales start trailing off, they lower the price a little bit at a time until they see the optimal supply and demand for maximum profits. 

Price increases need to be strategic, and you should always be prepared to communicate with your customers why costs are going up. For example, let’s say you’re a plumber and the cost of copper pipes has tripled. Your customers will likely understand a surge in rates. You can also offer discounts or loyalty programs to help offset rate hikes.

Here are a few things to keep in mind when raising your rates:

• You don’t want to alienate your existing customer base: If you raise your rates too high, you will lose customers to competitors.
• You don’t want to undercut yourself: If you charge too little for products or services, you might not make a profit.
• You need to stock up now: if you know you will be facing future price hikes, buy additional inventory at the lower price now. This will keep you more competitive for longer as unprepared competitors appear overpriced. 
• You can still offer discounts and loyalty programs: Even if rates rise, you can offer discounts or loyalty programs to help offset the cost.

When Is the Right Time for the Price Increase?

It can be hard to know when is the right for a price increase. You might be worried about losing customers if you climb your costs. But, if you don’t keep up with the rising costs of running your business, you’ll eventually fall into the deep end. 

Take these things into consideration when deciding whether or not to increase prices:

• Your Competitors Are Charging More for Less: If your competitors are charging more and you’re still offering the same product or service, it might be time to raise your rates. 

For example, let’s say you’re a landscaper who charges $50 per hour. Your competitor across town is charging $75 per hour. Even though you’re offering the same service, your competitor is making more money because they’re charging more.

You can either match their prices or charge less and risk losing business. If you want to stay in business, it might be necessary to raise your rates.

• Production Costs Also Increase: If the cost of producing your product or service goes up, you’ll need to pass those costs on to your customers. For example, if the cost of gasoline goes up, the cost of running a lawn care business will also go up. You’ll need to raise your rates just to outperform your competitors.
• There’s Inflation Happening: Inflation is when prices, in general, go up. It happens slowly over time, but it does happen. And it’s happening now. In fact, inflation data is at an all-time high. You may have seen inflation making the news lately. That’s because the consumer price index (CPI) data just surpassed 8.3 percent this past year from April 2021 to April 2022.

CPI data shows the cost of living and the inflation rate is going up, and the prices of goods and services should follow suit. If you don’t keep up with inflation, your business will lose money.

Should I Tell Clients about Price Increases? And if Yes, How Should I Justify the Price Increase?

Maybe you’ve been in business for a few years and have never raised your rates. Or, maybe you’ve only been in business for a short time and are already considering a rate hike. Either way, it’s vital to think about how you will justify a climb in costs to your clients.

Consider these few things when deciding to increase prices:

• The cost of doing business: If the cost of materials or overhead has gone up, then it’s likely that your rates will need to rise, too. Be sure to factor in all of the costs associated with running your business before making any decisions.
• The value of your services: Look at what other businesses in your industry are charging and what kind of services they’re offering. If you feel that you’re offering more value than your competitors, then you may be able to justify a hike in costs.
• The demand for your services: If there’s high demand for your services, then you may be able to charge more. However, if demand is low, you may need to lower your rates to attract new clients.

Deciding to raise your rates can be tricky, but it’s crucial to consider all of the factors involved before making any decisions. Doing some research and speaking with other business owners in your industry can help you make the best decision for your business.

Steps in Increasing Your Product/Services Price

Raising your product or service rate also involves marketing strategies. You can’t just arbitrarily rack up your price tag without first thinking about how it will affect your business.

A strong price is a lifeblood that fuels all other areas of the company, from product development and marketing to customer acquisition and retention.

In recent years, there have been several high-profile cases of businesses that have struggled to maintain their costs. That’s particularly so in the face of increased competition, which leads to disastrous consequences.

In 2013, J.C. Penney was forced to abandon a major price increase strategy after just three months, resulting in a massive drop in sales and billions of dollars in lost market value.

And more recently, Macy’s has been in a battle with Amazon over pricing on key items. It’s led to widespread discounts and promotions that have eroded profits.

The lesson from these stories is clear: Businesses need to be very careful when it comes to raising their rates. So, here are some steps you should take before increasing the cost of your product or service.

Conduct Thorough Market Research

Before you hike up costs, do your homework and conduct thorough market research. It’ll help you understand how much your target market is willing to pay for your product or service.

You should also look at your competition and see how they price their products or services. That will give you an idea of the going rate for similar products or services in the market.

Align Your Departments for This Purpose

You can’t just raise your rates without letting the other departments in your company know. It could lead to confusion and frustration among your employees. Make sure you align all of your departments for this purpose before moving forward.

That includes your sales, marketing, and customer service teams. They need to be on board with the price increase and be able to explain it to customers if they have questions.

Inform Your Consumers About Your Products or Services

Your consumers need to be informed about your products or services before choosing to buy them. That means you need to create awareness about your brand and the value of what you offer. You can do this through marketing and advertising campaigns. Also, make sure that your website is up-to-date and provides accurate information about your products or services.

Create a Transition Plan for Existing Customers

If you’re already providing products or services to customers, you need to create a transition plan for them. That will help them understand the hike in costs, and you’ll be certain that they don’t experience any service disruptions.

As mentioned earlier, you should also consider offering discounts or other incentives to existing customers to stay with your business.

A transition plan can include:

• Communicating the price increase to customers in advance: You can do this via email, social media, or other channels.
• Offering a grace period for customers to adjust to the new rates.
• Making it easy for customers to transition to the price increase without experiencing any service disruptions.

Creating a plan like this will help you avoid losing customers when you increase costs. Review your pricing structure regularly to check that it’s still competitive and profitable and adjust your pricing if necessary.

Update Your Pricing Page

After determining how much to increase your prices, you need to update your website and other marketing materials. That includes your pricing page, product pages, and any other places where customers might see your rates.

You should also update your invoicing system to start charging the new rates for all future orders. And, of course, if you have any existing contracts with customers, make sure to update the rates in those as well.

Why Businesses Need To Increase Prices

The bottom line is this: Businesses need to raise their rates to keep the boat afloat. With the rising costs of goods and services, it’s simply impossible to maintain the same price point and turn a profit. In some cases, businesses can absorb these cost increases and take a hit on their bottom line. But eventually, they’ll need to raise rates to stay in business.

There are many reasons why businesses need to hike up their price tags. First and foremost, the cost of doing business is always on the rise. From the cost of raw materials to the cost of labor, there are constantly upward pressures on expenses.

Businesses need to account for inflationary pressures, too. Over time, the purchasing power of each dollar diminishes as costs increase across the board. Hence, companies need to raise prices periodically to maintain the same profitability level.

Finally, businesses need to consider their competition when making pricing decisions. If competitors are charging higher rates, companies may need to adjust theirs to stay competitive.

Pricing is always a delicate balance for businesses. They need to find a price point that meets the needs of both the company and the customer. But with the ever-changing cost landscape, it’s becoming a rising struggle to maintain equilibrium.

As such, businesses need to be prepared to make periodic price hikes to stay healthy.

Conclusion

As a business owner, it’s important to keep a close eye on your costs. With the cost of goods and services always fluctuating, it can be hard to maintain a consistent price point. And if your competition is charging more for their products or services, you may need to raise your rates to stay competitive.

It’s never easy to hike up rates, but sometimes it’s necessary to keep your business afloat. By staying mindful of your costs and monitoring your competition, you can make informed pricing decisions that will help you maintain a healthy bottom line.

Do you need help in mastering your price increase marketing strategy? Wizard of Sales® has the knowledge and wisdom to help your business succeed!

Whether you’re an HVAC, plumbing, electrical, garage door, roofing, or other home service company, Wizard of Sales® can help you optimize your price increase strategy so that your customers will stay content. Book a demo.