Is it time you raised your prices?

By Richard Holdcroft

Is your business keeping up with inflation? Prices are rising at the fastest pace in decades, and the Treasurer has warned it may be some time before they are brought under control.

A successful business relies on a healthy profit margin. Interest rate hikes, wage rises and the spiralling costs of just about everything will erode your profitability and cash flow if you don’t react and adapt your pricing strategy accordingly.

Everyone is feeling the painful effects of inflation as the cost of living soars, and most of us now accept we will be paying more for things in future, whether we like it or not. However, while price increases may be unavoidable, the way they are presented can make a big difference to how they are received.

When handled badly, they can lead to customer complaints, social media outrage, being forced to backtrack or losing valued customers altogether. Introduced with authenticity and honesty, they can be an opportunity to remind people of the value you provide.

Research shows that the perceived fairness of price increases is a key driver of how people respond to them. Your customers are much more likely to accept a price hike if you are upfront about it and make an effort to explain your actions.

A clear and well thought-out pricing strategy will give you the confidence and the facts you need at your fingertips to justify higher prices to your customers. Your plan for implementing a price increase should include these 5 key steps:

1. Do the maths. Recalculate your costs and margins to take account of inflation, and ascertain how much you will need to raise prices in order to achieve your profit targets over the current forecast period. If necessary, ask your accountant for help.

2. Conduct market research. To assess how your customers may react to the new pricing you calculated in Step 1 above, you’ll need up-to-date market intelligence. Find out what your competitors are currently charging. Consider surveying the opinions of a few existing customers, or testing new rates with new clients to see what the response is.

3. Communicate. Wherever possible, give customers ample notice of impending price rises. Whether you do so by contacting them directly (always the best option), through signage or by email, you should explain your reasoning, encourage them to raise any questions and concerns they may have, and take every opportunity to remind them of the value you provide.

4. Limit the impact. Depending on the nature of your business, you may be able to soften the blow for your customers by staggering price increases of different products and services over time, or implementing a schedule of small, consistent price increases. Encourage customers to place advance orders before price rises kick in.

5. Keep your team informed. Advise staff well in advance of any price changes, and ensure they understand how you’d like them to communicate these to customers.

If inflation has forced your hand on raising prices, there’s no need to over-explain and apologise. Most of your customers will understand that costs are rising and will be prepared to pay a price that reflects your true worth.

To learn more, see the guide to Developing a Pricing Strategy on the business.gov.au website.

If you’re experiencing cash flow issues in the current high-inflation environment, we offer a range of business finance solutions to empower your company with an injection of capital.

Feel free to contact us for anything that relates to your business finances so we can help with your success.

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