The tongue and cheek answer to this question is that it’s time to raise prices when your revenue is no longer covering your expenses.
But don’t ever wait that long!
Instead, you’ll want to raise prices long before your business revenue is causing you to have sleepless nights.
Here are 7 ways to know it’s time:
First, as the business owner, it is within your discretion to raise them at any time. Some businesses raise them every year, some like grocery stores or gas stations, raise them whenever supply and demand require it. But if you’re one of those businesses that hasn’t raised them in over a year, I’m talking to you.
Consider the following:
The Market Supports It
If your product or services are on the lower end of a bell curve, it benefits you to raise them. While you may believe low price differentiates your business from the competition, so does going out of business. Do some research to see what others are charging. You can still stay on the lower end but never be the lowest.
Your Services or Offerings Have Changed
Sometimes the market dictates that you bring additional services under your umbrella or the industry embraces doing things in a different way than when you first started your business. Maybe your products are more heavily regulated or maybe the process you take requires more steps. If something has changed, and you’re offering more, you can charge more.
You Offer More Value Than the Competition
Everyone wants a good price but you can price yourself too low. If you do, it will begin to affect the way in which people view you and the quality of your services and offerings. Think about the value you offer your customers then price your goods and services accordingly.
Your Target Market Has Changed
Think about car manufacturing businesses. Most have an economy line/brand and a luxury brand. They’re owned by the same parent company and sometimes even use the same chassis in their designs but their market is different. If you are rebranding and want to enter a new market, like making the switch to a luxury brand, you will have to price your goods or services accordingly.
You’re Getting New Brochures
If you include pricing in your brochures and you’re ready to do a print run, consider your business pricing. You’ll save yourself some money if you increase prices and then run your brochures with the new pricing.
You’ve Hit Your Production Ceiling
Whether we’re talking goods or services, if you can’t produce any more in the time you have or with the money that you have, you’ve reached a revenue ceiling. If you’re content with your current salary at that revenue ceiling, don’t raise prices. If you’re not, do the research and start thinking about it. You’ll either need to do that or change your offerings in some way.
You Offer Something Nobody Else Does in a Way No One Else Can
There are plenty of entrepreneurs out there who have cornered the market doing something no one else wants to touch. For instance, a street sweeper at the turn of last century could make a good living removing horse manure from the streets and selling it to farmers. It’s an icky job but one with little competition. If you have a niche like that, congratulations. Now name your price. If you don’t, you can always consider what you could do to drill down to find a need in the market and become the only “street sweeper” out there.
Finally, if you’re hesitant about raising prices, try it anyway, assuming you’ve done your research and the market supports it. If you’re a service business call your clients and tell them of the change. Don’t email or write a letter. Explain that you are simply competitively pricing your offerings and underscore that the competition is still higher by 10-20%, even with the new pricing structure (assuming they are). Remind them that you’ve enjoyed having them as a customer and you value their loyalty. Because of this, if they hear of anyone offering services for less than you do, you will price match, or whatever guarantee you feel comfortable with.
While no one wants to hear of a price increase, most customers expect it at some point. If you fail to meet their expectations, eventually they will wonder why you are priced so much lower than everyone else. And the bias around “getting what you pay for” will negatively influence their views on your services.
Christina R. Green teaches small businesses, chambers, and associations how to connect through content. Her articles have appeared in the Midwest Society of Association Executives’ Magazine, NTEN.org, AssociationTech, and Socialfish. She is a regular blogger at Frankjkenny.com and the Event Manager Blog.