Increasing prices involves some risk, but if you handle things carefully you can avoid upsetting customers, while improving your margins
Make sure you're clear about why you're raising prices. Is it simply to make more money or is it because your costs have increased? Maybe your product or service is priced too cheaply, which is causing your business cash flow problems. Maybe a competitor is selling comparable goods at a higher price than yours.
Increasing your prices simply to make more money isn't illegal, but it can be difficult to justify to customers. You run the risk of them seeing you as expensive or greedy and taking their custom elsewhere.
Weighing up the risks
You should know how much value customers attach to your product or service. Can you rely on their loyalty if your prices were to go up? Will the market bear a price rise, and if not, would you be wiser to look for ways to trim your costs? Worse case scenario - how many punters are you likely to lose if your prices went up? Would a price increase put off potential buyers?
You need to consider whether your competitors will be able to capitalise on your price increases, maybe by offering (and being seen to offer) cheaper alternatives.
Work out what your profit per sale would be if you increased your prices. Maybe you could afford to lose a few sales but still increase your overall profitability. Even though turnover can go down, profitability can rise.
Although many customers appreciate quality, some are motivated mainly by value for money. These types of customer are the most fickle, but if you think the value of your offer has increased or if you suspect it is under-priced, you might still get away with an increase.
Is honesty the best policy?
If you are left with no other choice but to put your prices up, don't be afraid to do so. The risks posed to your business by leaving your prices as they are for fear of upsetting customers can be considerable.
Let your customers know exactly why increasing prices is necessary, but don't neglect to restate the benefits your product provides, together with any unique selling points you have. You might even be able to highlight additional benefits the increase will enable, for example, improved customer support.
There are a number of ways to conceal what is, in effect, a price rise. Examples include maintaining an existing price while lowering the quality or quantity of your offer. Another way of boosting margins is to introduce higher-priced "new and improved" goods and services while making older and cheaper ones obsolete.
Be very cautious before reducing the value you provide to your customers. If they find out you're being less than straight by trying to hide price rises, they're likely to go elsewhere - and never come back.
