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Small businesses are struggling to balance increases in their own costs with how much they can charge customers.
And as the cost of living crisis continues to present challenges across the country, you may be wondering how to tell customers your prices are going up.
It’s important for any business to review prices of their products and services in order to continue making a profit. And we know from our recent SME Insights Report that 49 per cent of small businesses are planning to increase their prices in the next six months.
So whether you’re a freelancer, tradesperson or have your own shop, follow these tips for getting the price increase message right – without upsetting your customers.
Writing a price increase letter can be challenging but is an important part of communicating to customers that costs are going up.
This could be emailed to your mailing list or you might display it in your shop.
The first thing to do is give customers plenty of notice. Imagine if your Spotify Premium subscription went up by £2 a month without you knowing. Giving customers time to plan and process the increase will help the message land better.
You’ll also need to think carefully about the tone of your letter and address your customers personally if you can. You can do this easily if you use a CRM system to email customers.
Just because it’s a difficult message doesn’t mean you should forget your brand’s tone of voice.
Lastly, make sure you give your customers the chance to ask you any questions. Be open to feedback and let them know the best way to get in touch with you if they have any concerns.
It’s important to manage when, and how much, you increase your prices. If you’re able to introduce a gradual price increase over time then that can help bring customers along with you.
McDonald’s UK recently made newspaper headlines as the fast food giant raised the price of a cheeseburger for the first time in 14 years. The BBC reported on the email McDonald’s sent to customers explaining the “tough choices” they’re having to make as a result of soaring costs.
The email used empathy to let customers know: "We understand that any price increases are not good news, but we have delayed and minimised these changes for as long as we could."
Adam Cozens shared his approach to price increases at his specialty coffee shop, Perky Blenders: “When we put our prices up, our customer base were understanding. Small businesses shouldn’t be afraid to put their prices up in line with their own costs, but they have to do it at the right time.”
When customers are happy with your products or services then they’ll be more likely to respond well to a small jump in prices. Do it at the wrong time and you could risk losing customers, which is known as ‘customer churn.’
All businesses experience churn. However if your customer churn rate is high, you’ll be losing a lot of existing customers each month which could lead to financial problems.
If you have loyal customers who regularly buy the same product or use your service, then it can be difficult to know how to approach a price increase.
One tradesperson based in south east England told us: “I really need to put my prices up to cover costs, but I’m too concerned about losing customers to attempt it yet.”
Supply shortages in the trades have been pushing prices up since the beginning of the pandemic and many businesses are feeling the squeeze. It’s important to reflect this in your pricing as otherwise your business could quickly become unprofitable.
If you’re only just starting your own business, it can be even more difficult to understand how and when to raise your prices. Just remember that it’s normal for businesses to put prices up, and bear these tips in mind so you communicate the message in a way that’s right for you and your business.
Have you had to increase your prices? Share your tips and experience in the comments below.
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