How To Increase Prices: Strategies and Best Practices

Deciding to raise prices is a nerve-wracking decision for business owners. You’ve worked hard to build a customer base, and the last thing you want to do is to upset or even lose customers by charging more for your offerings. But in this economic climate—where rising costs and inflation increase expenses ranging from supplies to shipping and salaries—a strategic price increase can be important for your business’s survival and sustainable growth.

Understandably, many companies hesitate to raise prices for goods and services. But when handled correctly, a price change can strengthen your business, improve your cash flow, and even reinforce your product or service’s value. Keep reading for tips on how to increase prices and communicate your new rates to customers both thoughtfully and effectively.

Why do businesses decide to raise prices?

• Your costs have increased
• You offer increased value
• Your market has shifted
• Your market demand is outpacing supply
• You want to boost profit margins

A price increase is rarely a random decision. For most small businesses, revisiting their decision to raise prices can stem from one (or several) of the following factors:

Your costs have increased

During the past few years, many businesses have encountered significant cost increases, whether for raw materials, higher subscription prices for software used to provide professional services, or more expensive gas for a delivery van. These higher costs directly affect profit margins. If you don’t adjust your prices to absorb these expenses, you will eventually have lower profits or start to lose money. A careful review of your business expenses will show if your gross margin is shrinking, signaling an urgent need for a price increase.

You offer increased value

Has your service quality improved? Have employee skill levels advanced through training? Perhaps you’ve added more services or products. Think of a software offering with a new suite of powerful analytics tools, for example, or a house cleaning service that switched to premium, eco-friendly products. When you deliver more value, your price should reflect that. Clients are generally willing to pay more when they feel like they are getting more for their money.

Your market has shifted

Your business doesn’t exist in a vacuum. It’s crucial to conduct regular market research to see what other businesses charge for similar goods and services. If your competitors are raising prices and you aren’t, you might be undervaluing your offerings. A significantly lower price could also imply lower quality to new customers who aren’t familiar with your brand. Adjusting your price to match the market average can help you stay competitive and properly position your brand.

Your market demand is outpacing supply

If you are turning away clients because you’re fully booked or selling out of your products, it’s often a sign of high demand. This gives you leverage to raise your price. The new price point will filter out clients who are more price-sensitive, which could lighten your workload and let you dedicate more time, energy, and resources to your remaining clients at higher prices.

You want to boost profit margins

Sometimes, the goal is simply to improve the financial health of your business. Growing profit margins are vital for reinvesting in a business, hiring, expanding your service or product offerings, and creating a cash reserve for leaner times. A well-planned price increase can improve your bottom line and revenue, giving you the financial freedom to expand.

Best practices for price increases

1. Monitor the financial impact
2. Add more value to justify the cost
3. Communicate transparently
4. Segment your audience
5. Revise your offerings to add value
6. Train sales and service teams
7. Implement gradually
8. Offer a choice or a last chance

Once you’ve decided to increase prices, it’s all about how you execute the change. A poorly handled price change can lead to alienating customers, while a thoughtful plan can reinforce the value of your brand. Here are eight best practices to help you roll out new prices effectively.

1. Monitor the financial impact

Before announcing anything, run the numbers and calculate how the price increase might affect your revenue, gross margin, and profit. Model different scenarios. For example, what happens to your bottom line if you lose 5% of your customers but the remaining 95% pay the higher prices? This analysis can help ensure that your pricing strategy is built on data, not guesswork.

2. Add more value to justify the cost

One of the best ways to soften the impact of a price increase is by enhancing your offerings. Can you ensure more services are included in your package? Can you improve your customer support? You can also frame it as an investment in a better experience—for instance, by explaining that the new price allows you to provide faster shipping, use higher-quality ingredients, or offer more responsive customer support. Or, tell your customers that it’s the best way to ensure you keep delivering the products they know and want without having to change the products themselves. Connecting the higher cost to tangible benefits may make it an easier pill for customers to swallow.

3. Communicate transparently

Don’t surprise your customer base. Give customers ample notice—say, 30 to 60 days—before the new rates take effect. Craft a clear, honest message that explains why the price is changing. Here, you can point to rising costs or investments in service quality. Thank your loyal customers for their business, and acknowledge the challenges this may bring for them. Honesty is a great way to build trust and show respect.

4. Segment your audience

A one-size-fits-all price doesn’t necessarily work, because customers have different needs, budgets, and relationships with your brand. By segmenting your audience, you can tailor the price change in a way that feels fair and strategic, minimizing churn while maximizing revenue.

Consider grouping customers by more than their price sensitivity. Here are a few commons ways to segment, along with different price increase approaches for each:

• Longstanding customers. These clients value their relationship with your brand, and it’s wise to acknowledge that relationship during a price change. If you run a subscription or contract-based business, letting customers lock in their current price for an additional six to 12 months rewards their commitment. If you sell individual products or ad-hoc services, offer a different kind of loyalty reward, such as a one-time discount code, a store credit or gift card, or a complimentary bonus product or service.
• High-volume clients. For customers who purchase frequently or in large quantities, a price hike can feel punishing. Instead, you could introduce volume-based discounts or tiered pricing. This softens the impact by rewarding customers for larger purchases.
• Budget-conscious or basic users. A price increase on your main offering is the perfect opportunity to introduce a new, lower-cost tier with fewer features. This can help you retain price-sensitive customers who might otherwise leave, while simultaneously increasing the value and price of your standard and premium packages.

5. Revise your offerings to add value

Instead of applying a uniform price hike to your existing products, use this as an opportunity to rethink how you sell. By restructuring your offerings, you can provide more options that justify the new cost and give customers greater control. The best approach depends on your business model.

• Service or subscription-based businesses. A classic strategy is to introduce pricing tiers. This allows you to create a basic package at a similar, accessible price point while creating new deluxe or premium tiers with more features, faster service, or a higher level of support, for example.
• Product-based businesses. This can include retail, beauty, and ecommerce businesses. While formal tiers may not fit as readily in this model, you can achieve the same result with two key strategies: creating product bundles and introducing a premium line, or a new, higher-end version of a popular product.

6. Train sales and service teams

If you have customer-facing employees, they will be on the front lines, answering the toughest questions. To set them up for success and ensure a consistent message, proactive training can help.

Here’s how to make that happen:

• Create a price increase playbook. Develop a simple one-page document that includes key talking points and an FAQ. The talking points should positively explain the reasons for the increase, while the FAQ should anticipate common objections and provide empathetic, approved responses.
• Conduct role-playing sessions. Practice is the best way to build confidence. Run training sessions where managers play the part of different customer personas—from angry and confrontational to unhappy and disappointed. Your team can practice their responses in a low-stakes environment, so they aren’t caught off guard during a real interaction.
• Empower them with preapproved solutions. Define what your team can offer when a valuable, long-term customer is upset. Can they offer a one-time 10% discount to ease the transition? A small service credit for their next purchase? Giving your team a limited set of tools empowers them to solve problems, turning a potentially negative experience into an opportunity to reinforce a customer’s loyalty.
• Implement a shadowing system. For the first few weeks after the announcement, pair less experienced employees with managers or senior staff. This gives them the opportunity to see firsthand how seasoned team members handle difficult conversations and provides them with immediate backup if a situation escalates.

7. Implement gradually

If a significant hike is necessary, consider rolling it out incrementally. A 5% price increase this year and another 5% increase next year, for example, may be more palatable than a single 10% jump. This strategy is particularly effective for any business with a subscription, retainer, or contract-based model, giving clients valuable budget certainty.

8. Offer a choice or a last chance

Give existing customers some options by letting them renew their subscription at existing rates or buy multiple products at the current price point before the change takes effect. This could even create a sense of urgency, boosting short-term sales and making people feel they got a good deal (which is great for keeping customers happy). You could also provide a small discount to incentivize a larger commitment at the new rate—whether it’s by prepaying for a full year of service or by purchasing products in bulk.