While mentoring a small business owner the other day, we recommended a price increase. His immediate reaction was “NO,” because he was worried that his customers would abandon him. He also felt guilty with the economy now facing inflation. We spent time challenging that thinking and suggested he look at inflation as an opportunity, not a negative.
Growth is always a challenge, especially in a mature category or if inflation is low as it’s been in the recent past. The instinct is to hold prices and cut costs to maintain margin. If you’ve done that, you know that it ultimately bites you. Your sales don’t grow and you have less money for marketing or other initiatives. It’s not good.
Here are four thoughts* that may help you feel more comfortable raising prices:
- Embrace inflation and recognize it’s a unique period, providing you the needed flexibility to do things you can’t do in a low inflation market. Today, raising prices is something customers expect. They don’t like it but also know that all businesses face cost increases. Get excited about what you can do for your business if you raise prices — more marketing, invest in equipment critical to future growth. No need to be a hero and keep your prices static, there’s little to no benefit to that.
- Sooner is better. If you wait too long you will likely be hit with additional cost increases, making your position even worse. While service businesses and restaurants can implement price increases right away, other businesses won’t see the impact of the increase for 3-6 months as their product goes through the distribution system and hits retail or a new subscription period starts.
- Take a longer-term perspective. Knowing that it’s unlikely you’ll take another price increase in the short term, try to anticipate where your costs might go so you are not back in this same position six months from now. For example, if you need to raise your price by 3% to protect your margin it makes sense to go for more reflecting anticipated cost increases over the next 6 to 12 months. You need margin to maintain or grow your business.
- Watch the competition. Tracking your competition is something you should always do. Focus on how your competition is managing pricing. What are they communicating to their customers? You don’t want to be way out of range on prices but there is also nothing wrong with being the first to move. As long as you have a great product and service, you won’t lose customers.
*KelloggInsight, 10/22/21, “Is It Time To Raise Your Prices?”
Jean Mojo is a certified mentor at SCORE. She has an extensive background in marketing, having owned a marketing services agency and worked in both product management and advertising. For more information about SCORE’s free, confidential small business mentoring go to: capecod.score.org or call 508-775-4884.