It seems that everyone else is doing this now. According to the April 2011 NFIB Small Business Optimism Index, a monthly survey of small business owners, 12% of responders raised their prices in April and another 24% indicated that they planned to do so.

Why raise prices now
There are compelling reasons to consider price increases at this time:

  • Higher expenses. Many businesses are now facing increased costs for gasoline, shipping, and other expenses.
  • Inflation. Many economists predict that serious inflation is just around the corner; we’re already seeing moderate increases now in interest rates. Businesses with lines of credit or other adjustable-rate loans likely will see higher interest charges if they have not already experienced them.
  • Competitors. Businesses that set prices in line with competitors may be lagging (missing an opportunity to charge more) if those competitors have already raised their prices.

Best way to raise prices
Many businesses fear that a price increase will drive away customers. However, when price increases are necessary or desirable, there are strategies to use to increase prices without losing customers. Some suggestions:

  • Instead of one large increase, make several increases in small increments. This strategy is helpful to keep pace as inflation rises.
  • Offer something new to add value when raising prices. The customers’ perception (and maybe in actuality) will be that they are getting more for their money.
  • Keep prices the same but offer less. Remember when coffee cans went from one pound to 13 ounces and chocolate bars shrunk?

Strategize
If you aren’t raising your prices now, at least plan ahead:

  • Monitor your expenses. If they continue to rise, a price hike may be necessary.
  • Check your margins. You may be able to absorb some increases, but there will come a point when a price hike is inevitable.
  • Know your customers. Keep the conversation going. Customers will understand a price increase for good reason (e.g., to cover higher fuel costs); they don’t want to be taken advantage of.