Afraid to Raise Your Prices? Don’t be a Chicken.
by Bill Burnham | September 19, 2024
Rising prices has been front page news for many months now. It seems everything we buy as consumers from groceries to gas or coffee to clothing has increased in price. We see it as consumers and we see it as small business owners, our costs just keep rising.
Despite the undeniable fact that costs are going up, most small business owners are reluctant to raise their prices. They see their profits shrinking as the cost of material, labor, insurance, etc. continues to rise and yet they can’t muster the courage to raise their prices. When questioned about it, the common answer received from business clients is, “I’m afraid I will lose customers.” While that may be true, some customers will look for a cheaper option, in most cases if you are providing a quality product or service and good customer service you will have built a loyal customer base who will continue to buy from you.
Real-Life Example
In my first couple of years as a business owner I had a continuous battle with my business partner/wife on the subject of raising prices. She was in the scaredy cat camp, afraid we would lose customers. My argument was: the benefits outweigh the costs. You might ask what were the benefits? Below are the three benefits that came to mind when thinking about raising prices:
- If you raise prices, by say ten percent and you lose less than ten percent of your customers, sales and profits will still be higher.
- Your sales will have increased with no additional effort or added cost.
- The customers you lose may very well be those who were the most trouble.
In my real-world experience, after finally convincing my wife to raise prices in our dry-cleaning business, we lost a grand total of one customer. That customer only brought his shirts to us, which in dry-cleaning are the lowest profit margin items, and he was a habitual complainer. In the end it was a win-win for us.
How to Notify Customers of Rising Prices
Like many things in life, the first time is the hardest. Raising prices will get easier as time goes on. In most cases you need not advertise that you are raising your prices. You usually don’t see a sign in the grocery store notifying you that milk prices have been raised. On the contrary, if you do have the type of business that requires you to notify your customers, a well-crafted letter or email explaining the reasons for the prices adjustment will suffice.
Price Review
Get in the habit of reviewing your pricing a least once a year. Include a price review as part of that process towards the end of the year, as you are making plans for the coming year. You may not need to raise prices every year but more often than not a price increase may be in order.
In the world of constant cost increases, you can’t afford not to raise your prices. So go ahead, give it a try… don’t be a chicken.
Bill Burnham
Burnham, Consultants, Growth Acceleration Consultants, Hernando, TampaFlorida SBDC at USF, Tampa
Specialty: Accounting, Business Planning, Business Valuation, Cash Flow Management, Financial Management, Growth, QuickBooks
Bill Burnham is a lifelong resident of the Tampa Bay area. He is a graduate of the University of South Florida where he majored in accounting. He obtained his MBA from Florida Institute of Technology. Burnham has more than 25 years of experience working with Fortune 500 companies, nearly 20 of those years in management positions. During that time he managed more than 200 employees and spent time in accounting, finance, manufacturing, production control and strategic planning. He managed government contract budgets in excess of $50 million dollars and operating budgets of more than $25 million dollars. He prepared analysis for potential acquisitions, proposals for government contracts and conducted company-wide training programs on several different topics.