Most owners wait too long to put prices up, then do it all at once. How to decide what to raise, by how much, and how to tell customers.
By Patrick Artese, Founder, Arthouse Advisory
The short answer: raise prices where your costs and your value have both moved, rather than across the board. Start with the customers and products where margin is thinnest, give a short, honest reason, and give notice. Most good customers expect prices to change. What upsets them is a surprise, or a rise they can't make sense of.
Why owners wait too long
Price rises feel risky. You worry about losing a good customer, so you absorb one cost increase, then another. By the time you act, the gap is big enough that the rise itself becomes a shock. Small, regular, explained changes are usually easier on everyone than one large jump.
Decide what to raise
1. Start with margin, not habit. Look at margin by product and by customer. The thinnest margins are the first candidates.
2. Check what's changed. Which of your costs have actually moved, and by how much? A reason grounded in real costs is easier to explain and easier to stand behind.
3. Look at what customers value. Speed, reliability, expertise and service often matter more to customers than a small difference in price. Where you deliver more, you have more room.
4. Clean up the quiet discounts. Old rates that were never updated, "mates' rates" and one-off discounts that became permanent are often the easiest place to start.
Tell customers well
- Give notice, and put the date in writing.
- Give a short, true reason. You don't need to over-explain.
- Talk to your most important customers yourself, before the letter arrives.
- Be clear about what isn't changing, such as service, people and quality.
Watch what happens
Track which customers stay, which ones push back and which ones leave. Some loss can be fine if the customers who leave were costing you money. That's a judgement to make with real numbers.
Here's an illustration, with made-up numbers. A product earning a 20% margin goes up 5% in price while its costs stay the same. The margin on each sale rises to about 24%. (Illustrative numbers only; your own figures will differ.)
Frequently asked questions
How much should I raise my prices?
There's no single right figure. Start from what your costs have actually done and what the margin on each product or customer needs to be, then test the result against what customers value.
How much notice should I give customers?
Enough for them to plan, and as a minimum whatever your contracts require. Many businesses give 30 days or more. Talk to key customers before the written notice arrives.
Will I lose customers if I raise prices?
You might lose some, and not all of those losses are bad. Customers who leave over a fair, explained increase were often among the least profitable to serve.
Where to go next
Read How to protect your margin when costs rise, or see how we look at pricing, costs and margins. Start with the free Self-check or talk to Patrick.
Pricing contracts or regulated pricing: check your obligations with your lawyer.
About the author: Patrick Artese is the founder of Arthouse Advisory, a business adviser with 15+ years of experience across 10+ industries. Read Patrick's story
