Raising your prices can be intimidating. When’s the right time and how do you execute an increase successfully?
And to complicate matters, that balance point is constantly moving, as your costs for materials, overhead and labor fluctuate, which means that you need to evaluate your price structure from time to time. While there are no rules for price setting, there are some considerations to keep in mind when evaluating when and whether to raise your prices.
Why Should You Raise Your Prices?
Raising prices can be intimidating; you don’t want to upset your existing customers or steer away potential customers. But price increases are an inevitable part of doing business. Some situations that trigger businesses to raise their prices include:
- Increases in business costs. Costs increase over time, and if you’re not increasing your prices accordingly, you’re going to see your
gross margins — the difference between what you charge and what it costs you to produce an item — and your business’s profits begin to erode. It’s important to make sure that your cost increases don’t creep up on you. It can be helpful to maintain a simple spreadsheet documenting your major costs, such as substrates, inks, emulsions, cleaning products, fuel and labor, from month to month. When you notice your major costs getting out of line with your prices, it’s time to make an adjustment. As a general rule, you should consider adjusting your prices once or twice a year.
- A desire to increase quality. By and large, quality products cost more money. You might want to upgrade your inks, your substrates or even your equipment to provide your customers with higher quality products. If your goal is higher quality, you should feel justified in charging your customers more; just like you’re willing to pay more for higher quality raw goods, most customers are also willing to pay more for a high quality finished product.
- Increasing profit margins. Increasing your prices can, of course, increase your profit margins if price increases outpace your increased business costs. If you feel like your business should be making more money for the amount of work you’re doing, you might be justified in increasing your prices. A good way to do this is to shop your competitors to compare the price points for some of your biggest sellers. If your prices are consistently lower – beyond the point where it’s reasonable to offer a lower price to attract more customers – or if you feel like your products are of a consistently higher quality for a similar price, it could make sense to increase your prices to increase your profit margins.
Should you decide that it’s time to raise your prices, give your customers ample notice so they can adjust their products accordingly or even place any orders they had planned under your current pricing structure. You should never surprise your regular customers with an immediate price increase, or by suddenly invoicing them at a higher price. You also have to stand by your price increase. In announcing the increase, you might want to provide your reasons, or at least be ready to answer questions about why your prices are increasing. Don’t waiver on the increase. Quality customers who value your business and services will understand that price increases are necessary from time to time. You should never surprise your regular customers with an immediate price increase, or by suddenly invoicing them at a higher price.
Think your business might benefit more from adjusting your prices in the opposite direction? Learn more about lowering your prices here:
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