Should I Put My Prices Up?

No matter how passionate you are about your business and its customers, the fact of the matter is that making money is always going to be high on your list of priorities. For some, right at the top.

That’s why creating a solid business plan is so critical, and why we’re always going on about accurate bookkeeping, financial forecasts, and monitoring cash flow so you can make better decisions. And one of these decisions? Increasing your prices to keep cash flowing in the right direction.

Increasing prices isn’t always quite as simple as it sounds, especially when you’ve got a base of loyal customers who are accustomed to what you currently charge for your product or service. As a business owner, you’ve got to do what you need to, to continue growing your business. You also want to avoid putting anyone off. It’s a tricky balancing act to master.

In this article, we share our advice on all things price increases: when to do it, signs it’s the right time, how often you should bump up your prices, and how to keep customers happy in the process.

Review sales versus expenses

One of the easiest places to start when considering increasing your prices is reviewing your business’ sales and expenses. By keeping a close eye on your business expenses and how much you are selling, you can identify whether you are charging too much or little for your products or services.

It’s all too easy for expenses to rack up, from fuel to phone bills. Tracking your expenses regularly can really pay off, as you’ll be able to easily spot areas that need attention. For example, your phone contracts may be up for renewal and you may be able to negotiate a preferential rate.

Saving on expenses means that you can reduce your costs and increase your profits without the need to increase your prices.

On the other side, if your business costs have gone up then that will need to be reflected in the price you charge for your products or services. Make sure you aren’t missing out and that your costs are properly covered in your pricing structure.

Using Pandle’s reporting feature, it’s even easier to keep track of how your business is performing financially. You can even export data into Excel to analyse performance in more detail.

How much is my time worth?

It’s all too common for business owners to overlook the value of their own time when running a business. The amount of time you need to spend to provide a customer with a product or service, and the amount of experience you have in your area of expertise, should be reflected in your prices.

For example, it might take you just 15 minutes to turn around a customer service, but that’s because you have 15 years’ experience in your industry. That needs to be reflected and accounted for in your pricing. Don’t underestimate the value of your time and experience.

Benchmarking prices against competitors

Doing your research can pay off. Most businesses will know who their closest competitors are, but it’s important to continually review competitor offerings. It’s the best way to ensure that you are still competitive within your market. If your competitor has decided to close its office and work remotely, there may be cost savings that are passed onto its customers.

You will need to review your offering and unique selling points within the market. Doing so ensures that your customers are still receiving the best service and you’re maintaining maximum profitability.

Yearly reviews

Most businesses review their prices on a yearly basis, reflecting the cost of living and rising costs of materials. It’s a good idea to build time into your calendar every year to plan ahead and consider reviewing your prices.

Pandle’s Cash Flow Forecasting feature helps businesses to set future cash flow goals and view trends in cash flow, helping you to make even better decisions.

When is the right time to increase prices?

The starting point for almost all business decisions is in your financial reporting, so you can identify what the issue is, and how best to fix it. For instance, if the business isn’t making enough money is it because sales are low, costs are high, or the price is wrong? Checking the figures will help you understand what’s what.

Getting the pricing right can be particularly challenging for fledgling ventures, so you might find you need to reassess and adjust as things change.

When your own outgoings increase

As a business owner, you’re almost always someone else’s customer, as well as being a supplier. You’ll often find yourself on the other side of the transaction, buying goods and services to use in your business which means you’ll inevitably be subject to suppliers increasing their prices.

Inflation or market demand dictates that the materials or services you use will gradually increase in cost over time, making it necessary to raise your own prices to reflect your extra spending. Monitor your expenses and overheads to keep track of this, and consider how long-term any price-hikes are likely to be.

For instance, the new Health and Social Care Levy will see an increase to the rate of Class 1 National Insurance. This affects both employees and employers, so it’s a long-term increase to employer costs.

You might also want to monitor your expenses so that you can recharge them to clients where appropriate. For example, recording your business mileage to a client meeting so you can bill them for the cost.

When you register for VAT

Businesses must register for VAT once their taxable turnover in a 12-month period reaches the £90,000 threshold, or you might find it useful to voluntarily register early. Once you register, you’ll need to charge VAT on all taxable sales.

This leaves you with two options in terms of pricing:

When you take on new employees

Employing new staff means you’re going to have to pay their salary, make employer’s National Insurance and pension contributions, and so on. Normally, taking on staff means you’re making enough sales to need the extra help, but new recruits in your workforce also brings new skills, talent, experience, and a fresh perspective.

You’ll be able to expand your offering and develop your product or service, so you might decide to invest in the talent in order to grow, rather than the other way around.

Other signs it might be time to increase your prices

How often should I increase my prices?

Although there’s no set timeline for increasing your fees, it’s clear to see why doing so too frequently would put off customers. On the other hand, not reassessing your prices often enough could mean missing out on opportunities to boost your profit and stand out in the market.

Enlisting the expertise of your accountant will also give you access to valuable professional insight – don’t forget, they see behind the scenes of a lot of businesses!

How to keep customers happy in the process

Customers are never going to celebrate paying more – that’s just the reality of the situation. What you can do is take measures to reduce the risk of any backlash, and remain considerate to your customers when implementing additional costs.

Timing is key

Choose your timing wisely, such as seasonal changes for popular items.

Introduce a new product or service at the same time

Adding value to what you offer customers shows customers they’re getting something back for the additional money you’re asking them to spend.

Consider only raising prices for new customers

If you’re particularly concerned about how your customers are going to react to increased prices, you might consider freezing costs for existing customers and applying new prices only to new customers.

Allow some wiggle room for discounts and promotion

Build in some allowance for discounts when thinking about your new prices to appease customers who might not be best pleased about the additional costs.

Create additional packages at lower costs to entice

If you offer services as a package, consider offering new combinations so customers pay for what they actually use.

Consider targeting a more affluent demographic

As well as nurturing your existing customer base, think about appealing to a more affluent demographic too. These are the customers who will be more willing to pay higher costs. You could do this through paid promotion such as social media and paid search ads.

Take a forward-thinking approach

Don’t just consider your past and present status when deciphering your new pricing structure, think about the future too. What you don’t want to do is increase your prices with a short-term strategy and then come to realise you need to do the whole thing again not long after.

The most important thing to remember when it comes to communicating with your customers is to remain honest, transparent, and approachable. If a customer respects your business and feels loyal to it, they’re more likely to be willing to accept increased prices, no matter how you go about justifying it.

Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.