When to Raise Your Prices: Five Things to Consider
It’s inevitable in every business – you must raise your prices to continue making a profit. Many factors go into deciding how much to charge, all of which are dynamic. The rising cost of goods, inflation, and a changing market are just a few reasons why any small business has to reevaluate its rates regularly to stay competitive (and to stay in business).
While it may seem like you just set your prices or recently adjusted them, this is a task that should be done once a year at a minimum – preferably more. Read on for some signs your business is ready to charge more.
1. You have a loyal customer base
Once you’ve been in business for a while, you’ve likely built up a loyal base. People will return to you when they know they will get a quality product. They’re also more likely to return when they know you personally.
If your business has a lot of customers who bargain shop because you offer rock-bottom prices, choosing to raise your rates likely won’t go well. Please wait until you’ve established a base of loyal customers who will happily pay more, knowing they’ll get fantastic, personal service from you.
People buy from those they know, like, and trust, so they’re likely to return once they know, like, and trust you. So build relationships to foster that customer base.
2. It’s been a while since you raised your rates
High levels of inflation justify raising prices. Otherwise, you’re operating at a loss. So keep track of the rate of inflation each year and adjust accordingly. People generally understand raising prices in times of high inflation. It’s good business sense.
For decades, the average inflation rate has hovered around the 3% mark, with some years worse than others. If you’ve paid attention to the news lately, you’ll know that things are a little different in 2022. Take into account what’s happening in the bigger picture, and then adjust your rates accordingly to avoid absorbing the hit.
3. You’ve added value
Adding value doesn’t necessarily mean you’re offering more literal services for the same price. Value can also come in the form of increased experience or new skills. In addition, when you add value to your offer, you can pass it on to your customer base. As a result, people are willing to pay more for superior products or services.
4. Your competitors are charging more than you
Be sure to look around to see what your direct competitors are charging. Then, as your business evolves and improves with time, check to make sure you’re comparing yourself against other companies of the same class.
If you don’t keep up with regular rate increases, you may be surprised that competitors you initially considered equals had raised their rates significantly. You will then find yourself in a position where you have to raise your rates considerably in one go to keep up. So keep on track by regularly checking what they’re doing.
5. Your close rate is over 80%
Some like hard numbers, so this is a good rule of thumb. You want your close rate to be between 75-80%. If it’s higher than that, you’re overworked and attracting bargain hunters.
If everyone is saying yes to your prices, you probably aren’t charging enough.
Final Thoughts
When raising your rates, you must consider many factors, and it’s easy to do too much too fast. Instead, make a point to reevaluate your rates every six months, and you’ll find that you can keep your customer base while keeping up with the increased cost of doing business.