How to Communicate Price Increases to Your Customers

Right now, inflation in 2022 is hitting small businesses hard. SMEs are facing increasing costs. They may also be facing higher interest rates on loans.

As a result, many businesses need to increase their prices. These increases need to be communicated appropriately to customers to maintain good relationships. So, here are some tips on updating your pricing and communicating your price increases to your customers.

Assess the current state of your business

You may already be confident that you’ve cut costs as far as you can. Even so, it’s important to double-check to be sure. If possible, enlist the help of at least one fresh pair of eyes, since a new perspective generates new ideas.

In particular, look for ways to simplify and, if possible, automate business processes. Look at your operating costs, especially your material costs. Remember that the prices you are charged often depend not just on what you buy, but how you buy it.

For example, placing a larger order for supplies often qualifies you for more economical pricing than placing smaller orders. The obvious issue is that you have to use up the large order quickly or have somewhere to store it.

If that’s a sticking point for you, investigate ways to resolve it. For example, could you pool orders with other businesses? Would it be worthwhile paying for extra storage?

Review your infrastructure costs

It may seem obvious but it’s easy to overlook, especially when you have lots on your mind. Keep an eye on your infrastructure costs, including your payment infrastructure. Make sure you’re always on the best deal for your usage.

Consider streamlining your product/service range

For each of your products, look at the sales volume and profit margin. If a product has a low score on both, then almost certainly drop it.

If a product has a low sales volume but a high profit-margin, check if the overall profit justifies the overall cost of stocking it. If it doesn’t, increase your marketing on the item to see if the situation improves. If it doesn’t, maybe drop the item.

If an item sells well but has low profits, see if the overall profit justifies the overall cost of stocking it. If it doesn’t, there is a definite case for a targeted price increase. If this causes sales to drop off, consider dropping the product completely.

Assess your current pricing structure

Bringing in revenue for your own business is a combination of what you charge and how you charge it. Resist the temptation to bring in flat price increases across the board. Instead, assess your product and service range closely. Actively find ways to increase prices with little inconvenience to your customers. Here are some ideas.

Switch up your options

Instead of increasing your prices, can you cut back on your products in some way? For example, if you sell treat goods (e.g. cakes), can you make them smaller? Can you remove any packaging (e.g. ask customers to bring their own eating utensils or bags)? Can you eliminate or charge for any add-ons you currently include for free (e.g. condiment sachets)?

Implement flexible pricing

Implementing true dynamic pricing is too complicated for the average small business. However, follow the principle of dynamic pricing by using flexible pricing.

For example, instead of just pricing items based on cost, look at demand. If a product is clearly outselling its competitors, consider raising its price to make the alternatives more attractive.

If customers continue to buy the preferred product, make more profit from it. This compensates for reduced sales of the other product. If they switch, increase the sales of the other products.

Offer customised pricing

No matter what sector you’re in, actively look for ways to create predictable, recurring revenue. For example, in food and beverage, offer customers food or drink deals for a monthly fee. Run a loyalty programme or a strategic promotion such as a meal deal.

Think about the impact on your staff

If you have staff on commission, think about how the price changes impact them. It might be appropriate to update your commission structure in line with your pricing structure.

Train your staff on the changes

Once you’ve decided what to do, prepare your staff for the changes. Be open to feedback. It is always possible that your staff pick up on something you’ve overlooked.

At the same time, deal with pushback gently and respectfully. Remember, change is often uncomfortable for staff too.

Communicate the changes to your customers

There are three keys to communicating price increases to your customers effectively. Firstly, give them as much advance notice as possible. Secondly, choose the right communication channels. Thirdly, craft the right message.

Depending on your customer base, the best way to reach them can be anything from personal contact to a social media post. Most businesses probably need a variety of channels to make sure that everyone gets the message.

Make your message consistent throughout but adapt it to suit your channel. For example, if you’re sending out an email, tell customers everything in the email itself. By contrast, if you’re using Twitter for your business, be very concise but refer them to your website for more information.

Ultimately, ensure that all customers understand what is happening, when it is happening and why it is happening. Give them a channel to contact you with questions or concerns, or feedback.

Assess the impact of your changes

As with any change, once you have made it, assess its impact. Allow yourself enough time to make a fair assessment. If you do change anything, do so mindfully.

Prepare for the future

For many businesses, this may be the first time they have made a significant change to their pricing. Realistically, it may not be the last. Review everything you have done so far and document what you have learned from it.

Then commit to regularly reviewing everything to do with pricing. That means not just what you charge but how you charge it and how you take payments. Create a strategy for updating prices so that it becomes a standard business process like any other.