Price is dependent on the state of the market, what the competition is up to - and how good your product or service is. It’s always difficult deciding how much to charge, especially if you are looking to increase prices.
Unless you have complete confidence in your product, service and business model, it's not going to be an easy decision - and the biggest fear will be to alienate your customers. However, prices often need to be increased in order for a business to remain viable - or, as a business develops, your product or service is worth more.
It's not always about the actual price increase itself, more how you approach the implementation.
Be prepared to explain why you’re increasing prices (higher costs and/or better products and services are typically the only reasons customers understand) but don't apologise and definitely don't ask for permission. You need to approach the changes with awareness, a willingness to communicate, but while always remaining in control.
"If you've proven your worth, then they [customers] won't walk away". Mary Ellen Slayter, Reputation Capital
1. Pick the right time
The optimum time to raise prices is when you’re certain customers are satisfied with your offering. If you’re planning a price increase, be especially diligent about proving your worth in the months before you do so.
“As a rule of thumb, over-deliver and really impress your customers for at least 100 days before communicating a price increase.” Matt Ehrlichman, Porch
If your business is service-based, your customers will expect price increases from time to time. If it's justified, raise prices at the beginning of every year or after a customer has been with you for a year.
If your services are provided on a month-to-month basis, offering a six-month or year-long contract at a lower cost is a good way to lock in customers who want to avoid the price increase. In retail businesses, give customers the opportunity to stock up before price hikes take effect.
Before raising your prices, make sure you’ve considered not only your current costs but also any cost increases that are likely to happen in the next year or two. You don’t want to go through a huge effort to raise prices, only to find six months later that you need to do it all over again.
“Make sure you raise your fees high enough so you don’t need to increase them again for at least another year or two.” James Caan
2. Provide more value
Price alone is never reason enough to buy. The more reliable, efficient and better your service or product is, the more customers are generally willing to pay.
However, you should communicate clearly the need for any price increases and it may be necessary to add greater value to sweeten the pill. Support pricing announcements with the positive benefits your product promises to deliver.
Customers are more likely to accept a price hike if they feel they are also getting something extra. What could you include with your current product or service that would cost you little or nothing but would provide higher perceived value to the customer?
"Your product should always be improving, but it's simply counterintuitive for somebody to pay more for the same thing they got for less before. Justify the price increase by adding features or providing some other type of added value." Andy Karuza, Brandbuddee
When you add a value feature to your offering it gives you a reason to review pricing. Early customers will understand that they joined you at the beginning stages of your product and that with the product's improvement the price may change.
3. Offer more choice
Soften the blow by offering new bundles of products or services. A price hike on one product or service could be accompanied with lower-priced alternatives. Examples include a discount in return for a larger order, ‘out of season’ rates, and bundled product packages
Announce a new range of products with a different price level. Research shows that, though customers often opt for the lower of two price levels, when three price levels are provided, they choose the mid-range or upper level rather than the least expensive.
“Let customers focus on value by giving them a second, lesser-priced option. Then there's a decision to be made, which focuses on the value that the product sets rather than the price increase. This is especially helpful if the lower plan is a little less expensive than what the customer currently pays. --Trevor Sumner.” LocalVox
Offer occasional discounts and deals that bring prices down to their original levels. Only your most frugal customers will use these discounts so you should still get plenty of people paying full price.
If you need to raise prices dramatically, you may need to go after a more affluent customer base. Even if your price increase is modest, expanding your target market a bit to more moneyed customers or businesses with bigger budgets can be a smart way to offset the customers you may lose.
Be Confident and Fair
In conclusion, you can’t keep ALL your customers happy ALL of the time, and when you raise prices, you’re bound to upset some of them. People don’t like handing over more money for something they’ve always had cheaper so be prepared to lose a customer or two.
Ultimately, people will pay what they think a product or service is worth. As long as you can prove you are good value for money you shouldn’t lose too much sleep over raising prices. Be confident that your pricing is a fair reflection of your product’s cost and value, then instil that belief throughout your business.