How Your Small Businesses Can Confidently Raise Prices Without Backlash

“If you’re planning to grow, but you’re not constantly improving your monetization plan, you’re pouring time, money and effort into less effective channels.” Tyler Zeman

Q4 is the time of year to prepare for the course of action you’re going to take with prices next year. Tyler has it right above. Businesses need to be proactively assessing and adapting their monetization plans (i.e. your pricing). If this isn’t part of your standard business practice you’re wasting time, money and effort. More importantly you’re leaving money, profit that is, on the table.

I’ve worked with many businesses over the years who wait to change prices until it’s so painful that they have no other option. By then the price changes needed are large and harder to implement without upsetting (even your most loyal) customers. Oftentimes it’s too little, too late. I always ask myself why? Why do they do this? It boggles the mind because they almost always say, “Janene, we know we should have done something long ago.” Here’s what they’ve told me.

• We don’t know how - lack clear process
• We’re not sure what changes to make - can’t decide
• It’s easier just to do other things - laziness or avoidance

And in most cases there’s fear involved.

• We’re afraid of upsetting customers - fear of losing business

Are these good reasons? I’d say no. There is nothing here that can’t be overcome or mitigated. You just have to give pricing the attention it deserves, taking the time to prepare, plan and execute. And yes you might lose some customers, but when you do it right you’ll be in a better position.

Let’s take a closer look at how your business can confidently change prices without the customer backlash.

Why? Because Every 1% Counts

Pricing is a sword that cuts both ways. Let’s say, in your business a 1% price increase yields a 6% increase in profit. And let’s assume all other things remain the same. That also means a 1% decrease in price is 6% less profit. OUCH!

Side note, do you know the impact of a 1% price change on your business? Founders, business owners, CEOs, CFO’s, marketing & sales heads, and pricing professionals alike should ALL know this number. It puts the pricing decisions you make into a different context. It also enables you and your team to make better decisions. Check out my Profit Impact Calculator to make this calculation for your business

In most cases, if you’re not edging up prices to keep up with inflation each year you’re giving customers a discount. Your business costs are often increasing in similar fashion. Falling prices and increasing operating costs are a surefire recipe for lower profits. Compound that over 3, 5 or 10 years, and you’ve most likely lost (or risk losing) 10’s if not 100’s of thousands of dollars or more.

Choosing to raise prices is not as simple as “keeping up with inflation”, it is more nuanced than that. The best results come when you take the time to make adjustments in a more targeted fashion. Also consider the following. We’re in an environment where the cost of living and of doing business is increasing. Customers may be feeling the pinch financially. Many industries will face fewer customers making purchases. Leaving businesses with the trifecta - higher costs, lower volumes, and de facto lower prices (if they choose not to change prices).

So yes, you need to protect your business and your customers - it’s time to have a look at those prices. There are 3 steps, let’s look at each.

Arm Yourself with the Right Information & Analysis

The first step is to get PREPARED. If you’ve got a solid pricing process in place you’ll be on top of this and save time. Because you’ve been looking at your prices all year long. If you don’t have it in place yet, then use this year as an opportunity to set your business up for success. In the preparation phase you’re gathering and analyzing all the pertinent pricing information. Armed with that you can make more informed decisions. This includes things like:

• Price drivers
• Prior year(s) price performance
• Business performance
• Market, industry or business changes
• Next years goals and objectives
• Etc…

This will show you what’s happening in the market, in your business and with your customers. The answer to, “What to do with my/our prices?” comes into focus. Ultimately, you’ll look at what has worked, what hasn’t worked, what’s going on externally and what are your objectives for next year. Make it top priority to consider different scenarios and run some simulations. This way you can understand the potential impact of changes you’re considering.

Plan Your Actions, Communication and Response

Step two, is PLANNING. Be purposeful and targeted in the changes you choose to make. Rarely does applying the same price change across the board give you the best results. Some items may increase, others decrease and others stay the same. Signature offers may be different from options and add-ons. Your price list and if you have it, your channel discount scheme may change.

Think about what needs updating internally and externally. What will allow you to make these changes smoothly? Pricing information can be in many different places like your website, POS system, contracts, price list etc... For a seamless transition to the new pricing they’ll need to be updated before the new “pricing rules” come into effect. Make it seamless for yourself and your customer / client base.

Last but not least, plan your communication. Not every price change needs to be communicated in advance. Think about the grocery store, the last time they raised the price of zucchini, did they send you an email or letter? Nope!

How and what you communicate will depend on your industry, type of business, your business brand or values, your customer relationship etc. You’ll want to be careful about what you say, when and how. You might need different communications for different types of customers. If you’re a bigger business you might also want internal communication.

Remember your actions and words around pricing are often more impactful than the numbers themselves. Businesses often go wrong with the communication, don’t let that be you.

This phase will help you to eliminate the number of “issues” and mitigate those that do come. Preparation here is key.

Execute Your New Prices with Confidence

The last step is to EXECUTE the new prices. The first step is making the announcement (if that’s what’s needed) to the customers and/or the market. In some businesses you’ll handle this client by client and others it will be more general (if at all). And then you’ll start working with those new prices.

You may get reactions, questions or push back about the changes you’re making. Be careful and consistent in how you respond. Stay true to your value, your company values, and if you’ve made a mistake somewhere be reasonable about that too. If you’ve prepared well in the previous step, you’ll feel more confident to handle push back when it happens.

Of course as you’re using the new prices it’s important to stick with them. Let’s face it, even with the best of intentions, sometimes things don’t go as expected. Often businesses give away the increases through unnecessary discounting, special offers and negotiations.

This is why the last thing to do in the execution phase is set up a way to monitor your prices. Depending on the business you would want to touch base with your pricing quarterly. Not with the intention to change but to review if you’re still holding the new changes. And if not to understand why and adjust your strategy or ways of working if needed.

As a bonus, if you’re regularly checking in with those prices next year's price gets easier.

The Do’s and Don’ts of Changing Prices

Let me summarize with a few do’s and don’ts when it comes to planning price changes.

Do:

• The math!!!
• Run scenarios
• Consider competitive reactions
• Ensure changes are aligned with brand & values
• Prepare, plan and execute
• Be selective about changes
• Communicate it effectively (when needed)
• Monitor the implementation & adjust if needed

Don’t:

• Put it off until it’s so painful you have no choice
• Make unnecessary communications
• Underestimate competitive responses
• Focus on losing no customer, focus on keeping the right ones
• Apply the same price change to everything
• Give it all aways with unnecessary discounting, wheeling and dealing

If you follow me you know I’m always saying, “Pricing is more than just a number.” As you can see, setting a number isn’t enough. Businesses that understand this treat pricing as integral to business decision making. They understand pricing is not a one time activity and they are more sustainably profitable as a result.

When pricing is an integral part of your business, you …

• have a clear process for monitoring pricing
• know what pricing decisions to make and when
• not dare avoid pricing discussions and decisions
• be clever about how to limit any downsides of price changes
• be more sustainably profitable

Changing prices shouldn’t be feared but seen as a natural part of running a business. If you’re not feeling this sense of confidence and certainty when you think about changing prices for next year, now is the time to step up and get your pricing and profitability act together. Keep working on your monetization plan.

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