7 Rules For Raising Prices
 By Lee S. Shaffer

“Price increase” may be one of the most dreaded phrases in the English language. But if you operate a small business, this is one demon you’ll have to face from time to time.

Like it or not, when the cost of doing business starts cutting into your bottom line, you may have to take the plunge and raise your prices just to stay afloat.

Increasing prices can be one of the hardest things you do. And it’s no wonder it can stress you out.

Think of it as asking your boss for a raise. Only in this case, your boss isn’t the guy in the corner office. Your boss is each and every one your customers – and they have the final say on whether they’ll agree to your raise or send you packing.

No one likes paying higher prices. Chances are you’ll get more than a few grumblings.

However, you can minimize the blow and keep your valued customers by following these seven rules for price hikes.

1. Check out the competition
Do some research and find out what the competition is charging for similar products and services. Make sure your prices are in line with what competitors are asking. The last thing you want is to price yourself out of the market. Don’t raise your prices so high that your customers can get comparable products or services for much less.

2. State your case
Explain to your customers why you need to raise prices.

• Are gas and energy prices eating into your profit?

• Have the prices of your materials gone up?

• Are technology costs through the roof?

• Do you need updated equipment to provide better customer service?

Be honest with your customers so they don’t think you’re just looking to line your pockets with extra cash. Let them know how long it has been since your last price increase.

In addition, remind them how satisfied they have been with your services in the past. And let them know you plan to deliver the same value they’ve been accustomed to.

3. Give plenty of warning
Make the most out of your opportunity to prepare your customers.

Don’t drop the news of a price increase on them without proper notice—at least 90 days. Many of your clients prepare budgets well in advance, and your increase can have an impact on their bottom lines.

Assure customers that your current prices will be accepted until the date you’ve designated for the increase. Give them the chance to order last-minute services at the old prices.

4. Put it in writing
Send clients a brief letter explaining why you are raising prices and when the increase will go into effect. Include your new price list. Be apologetic, yet straightforward. And thank them for their past business. Consider face-to-face meetings with your best customers to alert them to the increasing prices. Then follow up with a letter.

5. Work with your customers
Your clients will appreciate it if you’re willing to look at their situations on an individual basis. Work with them to develop alternatives that will help them stay within their budgets. Perhaps there are economical solutions you can offer for their needs. Keeping a loyal customer—even at a lower price—is much better than losing one.

6. Update your materials
If you post your price list on your Web site or print it in brochures, make sure these are updated to reflect your price increase.

You don’t want current customers questioning why you’re still advertising the lower prices. Nor do you want to quote new customers a higher rate than they saw in your marketing materials. It leaves a bad first impression.

7. Avoid frequent price hikes
Raise your prices enough so you won’t have to increase them again for at least another year—preferably two years. Hiking your prices too often can result in customers losing confidence in you. It sends a message to them that you don’t know what you’re doing.

(Posted July 2007)

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