By The SBA

Every business has to raise its prices at some point. And if you provide genuine value, and the hikes aren’t too steep then your customers may not notice, or care too much.

But for many business owners, particularly in competitive industries, raising your prices can be tricky.  If you are in the business-to-business (B2B) sector, and provide services to clients on a regular basis, it can be especially difficult, since you’re probably going to need to be upfront about your price changes and possibly renegotiate a new contract.

But market fluctuations, the cost of inventory, and so many other variables mean raising your prices is inevitable. So what’s the best way to handle raising your prices, without losing your customers? Here are some tips:

1. Build a Pricing Strategy into Your Business Plan

Business planning is not a one-time exercise by any means, a plan that is revisited quarterly can help guide your vision for your business but it can also help you ensure you are pricing your products and services appropriately. Do this by including a pricing strategy in your business plan. Take into account all the factors that influence how you price your products or services such as market forces, wholesale prices, competitive pressures, and other cost-of-doing-business expenses. A pricing strategy that is revisited monthly or quarterly can also help you better manage cash flow and profits because you should be able to proactively predict when you need to make a rate adjustment, instead of waiting until it’s too late.

2. Consider Changing Your Pricing Structure

If you don’t think your customers can stomach a direct price hike, consider restructuring how you package and price your services instead.  Here are some ways to do this:

  • Cross-sell – “Would you like fries with that?” Cross-selling is an effective way to increase sales of related services while focusing on the needs of your customers. One way to do this is to offer a second or add-on service as part of a bundled price. This way you sell more (assuming you are not undercutting your margins) and introduce your customer to additional services.
  • Tier Your Pricing – Another way to sell more without raising prices is to introduce multiple price points for essentially the same product. This works particularly well for retail and service businesses. The plan here is that the tempted consumer will opt for the higher end of the tier. For example, a coffee shop may offer the following options:
  1. Cappuccino @ $1.50
  2. Cappuccino with a Shot of Syrup @ $2.00
  3. Cappuccino with a Shot of Syrup and Cream @ $2.50The variations are tempting, the value is clearly advertised and the decision to spend more is ultimately in the hands of your customer. The same basic, middle, and premium tiers can also be used in consulting businesses.
  • Change How You Bill Your Time– If you provide any service that involves selling your time in blocks, think about switching how you package your time. For example, if you are a consultant or lawyer increasing your hourly rate with an existing client can be tough, instead sell your time in different chunks at different rates:
    • 2 hours @ $85 per hour
    • 5 hours @ $75 per hour
    • 10 hours @ $65 per hour

3. Raising Your Rate as a Consultant or Service-Based Business

If you operate a service-based business or are a freelancer/consultant, successful price renegotiations often come down to client satisfaction and the value placed on the relationship. If you are 100% confident in the value of your services then it’s likely that your clients are too and are fully expecting to renegotiate your rate at some point in time.  If you plan on raising your rates in the new year, engage the client in November – this gives them enough time to review your proposed rate, negotiate, and plan accordingly.

4. Be Prepared for Push Back

While you may have to explain why you are raising your prices, it is your right to do so. Don’t forget to explain your price increase in light of positive factors (don’t just blame the cost of doing business) such as the value you deliver, your commitment to your customers and your business, and be sure to mention any investments you have made in yourself (such as training) or your business that justifies the investment. Finally, be prepared to negotiate and reach a compromise that you and your client can agree on (especially true for B2B’ers). Ask yourself how low are you willing to go? What is the ideal mid-point at which you’d be happy to accept a negotiated rate?

Good luck!

U.S. Small Business Administration
The SBA is an independent federal agency that works to assist and protect the interests of American small businesses. The agency delivers the answers, support and resources small businesses need to start-up, grow and succeed through district offices throughout the U.S. and a network of resource partners including SCORE.

4 Tips for Raising Your Prices Without Losing Business