5 signs it’s time to raise your prices
Regardless of how long your business has been trading, it will eventually be time to raise your prices – but when?
Choosing the right time to raise prices is crucial because there is always the risk that customers may go to a cheaper competitor. So how do you know when the time is right?
1. Your own operating costs rise
The cost of business goes up from time to time and wherever possible your business will be making economies or absorbing costs to protect your customers. From the cost of raw materials to rising electricity prices, there is always some external pressure on your profit margins. Eventually there will come a time when you can no longer take the hit – and that is when you know it is time to raise your prices.
2. You win every quote outright
In the early days of a start-up, winning bids is essential to building up the capital you need to grow. But if after a year or two you’re still winning every quote, no questions asked, you are almost certainly too cheap.
Try quoting slightly higher rates for new clients and see how they respond – just remember that pricing negotiations are not a sign that your quotes are unreasonable. In fact, you may find that higher prices deter those customers who are only interested in the cheapest supplier, attracting instead those customers who appreciate quality of service. You should only be concerned if you have a series of quotes rejected following a price rise.
3. Customer demand is rising
Many businesses are seasonal – demand peaks at certain times of year, like the run up to Christmas. Where demand threatens to outstrip supply, you can legitimately raise prices without causing too trouble for your customers. Similarly the release of new products can be a good time to increase prices, with corresponding reductions as demand falls or inventory of older products is exhausted.
4. Prices in your industry are rising in general
Where you notice that competitors are raising prices, there is no reason not to implement some increases yourself. Obviously you do not have to copy their exact prices, but it makes sense to adjust your prices in tandem with the industry. You can always cut costs to gain additional market share at a later date if required.
5. You have a loyal customer base
Where customers come back time and again, your business can probably carry off a moderate price increase without losing too much of your client base. Where there is no specific need to carry out a price rise (like increased operational costs), you should always carefully consider the potential problems such a move may cause. You should also research the market to decide whether the projected increase will be considered reasonable by your customers or not.
If you find that your business is faced with one or more of these factors, it is almost certainly time to raise your prices.