How to Communicate Price Increases With Customers

The decision to raise prices is one that many business owners face at some point, but after the last two years, knowing how, when, and how much to raise prices can feel especially precarious. With both business owners and consumers feeling the impact of the economy, raising prices is no longer just a financial decision, it’s also a marketing one.

As of June 2022, the United States Consumer Price Index (CPI) increased 9.1% year-over-year. The CPI is [used as a measure](https://www.bls.gov/cpi/#:~:text=The%20Consumer%20Price%20Index%20(CPI,of%20consumer%20goods%20and%20services.) of the average change over time in the prices paid by consumers for consumer goods and services, commonly referred to as inflation. Right now, businesses are faced with the steepest rise in cost of goods since 1981 and a slowing economy, meaning businesses have to spend more to maintain business as usual. But consumers aren’t spending at the same rate resulting in businesses feeling the squeeze. 

The necessary solution for businesses right now is to raise prices to keep up with the rising cost of goods and keep their margins in a profitable zone. Finding the perfect balance among overhead costs, food costs, and profit margins comes down to the math, but how you communicate the changes to customers can make all the difference. 

Before sharing increases with customers, know the numbers 

Ultimately, all businesses should be operating at a profit, but the journey to become profitable, and remain profitable, looks different for all businesses. Depending on the industry, what type of business you’re running, where you are located, and what goods and services you’re supplying, your profit margin might differ and evolve. 

Calculating what it takes to be profitable for your business is one of the first exercises in running a business. But when the economy changes and cost of goods rise, it’s time to revisit your accounting to make sure you can keep customers happy but not stretch yourself too thin. This due diligence will prepare you in the following areas as inflation uncertainty continues:

  1. Knowing where you can minimize impact from inflation:  As you adjust prices to keep up with inflation, make sure you really understand where you are recouping some costs and where you are making adjustments.
  2. Flexibility around pricing strategy: Understanding your business thoroughly during this time will enable you to identify the key areas of your business that can change. This will allow you to be creative about what services and products you offer to show that you are still providing value to your customers.
  3. Clear communication with customers: It’s important to really understand where and why you are changing your prices in order to set yourself up for honest and transparent communication with your customers around increases. 

Be transparent and upfront with customers about price increases

Customers might not be excited about their favorite business raising their prices, but they will appreciate honesty. Stephanie Rich of Verdine, a restaurant in Houston, TX, shared insight into how to be open with customers about why prices might be rising. “You can’t lower the true cost of food that you have to pay. There’s nothing you can do about that, but you can educate your customers about [your products], what’s special about them. What’s unique, why it costs what it does. Does it take you 20 hours to make one cookie? Tell them that. Are you making everything from scratch? Are you using organic ingredients? Are you using the best butter out there? Put out a sign, put up that information, try to get that across to customers.”

One of the best tactics is to immediately notify customers of price changes over email or social media before they’re implemented. It’s best to avoid any surprises, especially when it comes to scheduled payments or subscriptions. For those instances, be sure to provide customers with an easy way to change their subscriptions if the new prices don’t work for them. 

Also, be sure to provide a way for customers to directly communicate frustrations with changing prices and respond in a reasonable amount of time. It might seem like the last thing you want to do, but letting upset customers know that you hear them can go a long way. Even if they don’t like the reasoning you provide, being willing to communicate and listen to their feedback can build trust and loyalty with them.

Avoid sticker shock

Raising prices too steeply or too often can result in customers experiencing sticker shock and put you in the position of potentially losing business. If you know that you ultimately need to raise prices to a certain point, consider doing so incrementally across a period of time. Customers might expect some price increases right now, but avoid giving the illusion that you are price gauging or raising prices higher than you need to.  

Don’t send conflicting messages

Big sales are a huge draw to get customers through the door, but raising prices and then having blowout sales sends conflicting messages to your customers. While customers can understand a need to raise prices to combat inflation, they won’t be happy if you’re raising prices on items, just to turn around and put them on sale. It might look like a strategic move to dupe customers into paying more when your business can survive without needing that increase. 

With anything else, be strategic about what you put on sale and prioritize older merchandise with manageable price cuts that won’t dramatically impact your bottom line. 

Get creative with how you show value to your customers

In order to keep up with inflation you might have to cut certain items from your business because of the low profit margins they provide. Or, with supply chain issues, you might not be able to keep inventory as stocked as you once did. 

Product bundling

Take inspiration from the Happy Meal and consider bundling products together at a slight discount. Look at your sales data and identify what items have higher profit margins and are either already bought together or could be based on seasonality or theme and create bundles for your customers. The key is to continue offering the items individually so that customers can see that the added value from purchasing the items together. 

Seasonal menus

If you’re a restaurant owner, consider adjusting your menu to include more seasonal items or specials that are either readily available or on sale. Stephanie Rich advises businesses take this approach when they need to cut back on costs, but not on the value or quality that you are giving to your customers. “Look at the grocery store and what’s on sale. [For example], I have regular items, but I have specials. So if sweet potatoes are on sale, great, that’s what I’m buying and that’s gonna be stuffed into my taco or my empanada. I can use what’s on sale and in season because that would be a lower food cost.”

Dynamic pricing

Dynamic pricing is widely adopted in the travel industry as businesses offer airfare and other accommodations based on variables like what time of year or which day of the week they are booked. Although dynamic pricing is not used as commonly in other industries as it is in hospitality, now may be the perfect time to explore it as a pricing strategy. Dynamic pricing offers real-time pricing changes based on demand, going up or down depending on need. Take restaurants for example. They can use excess inventory, like perishables, by featuring them in menu items during the off-peak times. In contrast, restaurants can offer more of their high-profit margin products during peak times. By implementing this strategy effectively, businesses can have more control over their bottom line while offering current and prospective customers pricing options that are seen as a value, not a takeaway.

Be genuine 

Navigating an uncertain economy, inflation, and supply chain challenges while managing customer expectations and providing a high level of customer experience is a lot for any business owner, at any stage, to handle. Communicating pricing changes with customers might not always be the easiest thing, but as long as you remain transparent and genuine, your customers will be more understanding than you might expect.