SMEs make ‘clear move’ towards higher prices for consumers, according to an article on the Irish Times on September 8th, and Behaviours and Attitudes’ report, which detected big increase on firms planning to charge more. This increase is driven, especially, by medium to large SMEs based outside Dublin area.
Although the SME Confidence Index, scored confidence at 65.6 out of 100 in the second quarter, above the pre-pandemic level of 65.2 at the end of 2019, “signs of growing price inflation” particularly in larger SMEs (44%) as well as businesses in the retail and wholesale sector (57%) said they expect to increase prices.
The report also shows encouraging trends that not only business optimism rebounded to pre-pandemic level, but the outlook is strong too.
But what does it mean for Small and Micro Business, especially when remaining competitive, after the last 18 months, is already a challenge?
According to the report, the picture for micro-enterprises is even bleaker, due to lower trading performance and their focus on local market.
So, as it seems almost impossible micro businesses can absorb more costs increases without passing them on to their customers, find below our 10 Tips to increase prices without losing customers.
Price the Increase sensibly
Try implementing smaller, incremental changes, or increasing the price of certain products while minimising the increase on others.
Be Honest About the Increase
The best option is always to be straight with your customers. It is never a good idea attempting to implement a price increase without anyone noticing. It is possible, of course – if you sell 65kg bags of widgets you can reduce the bag to 62.5kg but keep the bag the same price. Some of your customers may not notice, but those that do will not be happy.
Explain Why You Are Doing It
You should only give your customers as much detail as you are confident divulging, however the more they understand the reasons for the price increase the more likely they will willingly accept it. Examples of price increase justifications that most people will accept include the increased cost of raw materials, or that your business is investing in improved products or services.
Get The Timing Right
Sometimes timing is important when implementing a price increase. For example, retailers can use the seasonal or periodic launch of new products to increase prices. This will differ for every market and industry but getting the right month can make a price increase go much smoother.
Notify Your Customers
We are all struggling, so no one wants to be hit with a price increase out of the blue. Notify your customers before you implement a price increase. Make sure you give them a reasonable amount of time too, especially if they will have to pass this increase on to their customers.
Talk About Value
When discussing the price increase with your customers don’t only talk about price. It is much better for you if the conversation is about value. For example, you can explain how the customer has benefited from upgrades, enhancements, developments, or improvements to your product or service that have not incurred a price increase. Another example is talking about the improvements that you plan to make in the future, and how the customer will benefit from those.
Boost prices through add-ons
Have you ever purchased a piece of electronic equipment and been urged to buy an extended warranty or service contract, batteries, or some accessory along with it? Small amounts can quickly add up if you have add-on products or services that appeal to your target market.
For example, We’ve noticed more and more restaurants offering “extras” like avocado on a sandwich or chicken on a salad—for an extra fee. If you have a €10.95 chicken Caesar salad on the menu, why not replace it with a €9.95 Caesar salad and the option to add chicken for €2, shrimp for €3, or salmon for €4? Now you’re charging €11.95 for the same salad, and maybe even €12.95 or €13.95, depending on the customers’ choice.
Offer An Alternative
Another option you have is to offer an alternative. This works well in many situations, including with businesses that compete heavily on price. It works by telling your customer that you are increasing the price for what they currently receive, but they also have the option to pay what they are currently paying for a slightly reduced service or quality of product. This maintains the value of your product or service.
People will pay more for something if they believe the value exceeds the price paid.
Eliminate unprofitable products, services, or customers
Review your pricing strategy using the 80/20 rule or Pareto principle and keep the price of your core (20%) services or products the same or with a minimum increase and increase the price of the rest.
This isn’t technically a way to raise prices, but it can have the same effect. Pay attention to your financials, and track which products and services have the lowest profit margins. Unless they’re loss leaders (or basket drivers) that get customers in the door (where they then buy high-margin items too), eliminating these low-margin offerings can make you more productive and profitable by giving you more time to focus on the high-margin parts of your business.
Do you have a customer who’s paying less than you’d like, but demanding more of your time and effort? As your business grows, however, these high-effort, low-return customers drain your energy without contributing much to your bank account. See if you can raise the customer’s prices—but if they don’t agree, be willing to cut them loose.
Allow time to work ON your business instead of IN you business
If you allocate time to work ON your business instead of IN your business, you probably will be better equipped to navigate prices increases. Here some other tips, that can help you
1. Strategic planning: Implementing a price increase requires planning. It would not be unusual for the process of discussing a price increase, deciding on that increase, communicating it to customers, and implementing the increase, to take several months. If you are implementing it incrementally it can take even longer, so make sure you plan.
2. Be creative when developing your price structure. Explore ways to add fees. Deliver extra benefits, provide more value, create multiple price points, etc. These small fees add up. Think about the 80/20 rule.
3. Customers’ Clauses: Go up on new customers and leave prices unchanged for current ones. Or, set an expiration date on current prices with the understanding that they will go up for everyone at a future date.
4. Don’t apologise. Price increases are necessary at times. There are several reasons you may need to go up — operating costs, increase in materials, etc.
If you need help to figure out where to start working ON your business, get in contact at email@example.com