December 9, 2021 | 4-minute read (790 words)
You may determine that a price increase is necessary to cover growing expenses and keep up with market trends after a few years of selling your products or services at the same prices. However, after working so hard to expand your client base, you’re probably also concerned about how to implement a price hike without losing clients. It’s no secret that when sellers raise their pricing, long-term customers are apt to grumble.
Nevertheless, fulfilling your company's financial demands has to come first. If you run out of money and cut back on product features or additional services, you will not be doing your customers any favors.
Consider this eight-step strategy for successfully raising prices while still keeping your customers satisfied.
Step 1: Research competitors
Investigating whether pricing adjustments have affected competitors can help you determine how customers reacted and how it affected their business over time. For example, an initial drop in users following a price rise may have recovered and then gone up.
Step 2: Work the math
While raising prices may appear to be a simple strategy to increase revenue, there are other aspects to consider. The most important consideration is how raising prices will impact your firm.
A price increase only makes sense if the revenue it generates outweighs the revenue lost from churned consumers. According to research by The Economist, a company may successfully raise prices "up to a certain degree" without losing value. However, if the increase exceeds 20%, it may precipitate a drop in volume, negating the increase in revenue.
Step 3: Time it well
The most opportune time to raise prices is when most clients are highly pleased, not when you have received negative press or a widely circulated poor review. Try polling your users ahead of time to ensure that what you're giving is valuable to them and that they're happy with your organization and its products. If you find unsatisfied clients in the course of your survey, fix those issues before considering a price increase.
Step 4: Roll out a price increase in stages
Price increases might lead to a decrease in customers or clients, so spreading the changes out over time is a good idea. It gives customers time to adjust to the impact. Although the number of users may sag initially, you should begin to see positive results over time.
Many businesses, particularly water and energy suppliers, announce a price hike and then explain how the increase will be implemented in gradual stages to soften the impact.
Step 5: Communicate your intentions
When making any changes to your business, it is typically best to explain your reasons for doing so upfront. This is especially true when a price increase is involved.
In your communications with customers, use objective language and cite concrete reasons for the change. Explain where their money will go, such as for upgrades, for new user experience design or user interface design enhancements, new features, improved back-end reliability or other incremental improvements. Most customers are willing to pay more for better quality and service, and a direct approach is more likely to convince them of your efforts to remain competitive.
Step 6: Incorporate value
Adding value to your product or service gives you a reason to review pricing with customers. The majority of people will realize that pricing will inevitably change as time passes and new features are added. Before considering a price increase, be sure your product or service has more to offer customers than when they initially signed up.
Step 7: Reward long-time customers
If you're not sure how long-term consumers will respond to a price hike, consider implementing a loyalty program or offer exclusive advantages or benefits. One option is to lock in the subscription rates they are currently paying for a specified period of time while raising prices for new subscribers. For example, when Amazon hiked the price of its Prime membership by 20% in 2018, existing members were given the option to renew at a lower price.
Step 8: Expand offerings
For customers who refuse to pay more, consider adding new packages or options at a lower price or reduced value to encourage them to stay with your firm. Special bundles with lower prices may also appeal to new clients who are reluctant to use your company after hearing about the price increase.
Hope for the best, plan for the worst
Customers that are solely focused on price are likely to stop doing business with you. On the other hand, increasing prices may attract new, more lucrative clients who are willing to pay more for higher quality. Once you've taken the required measures to ensure a smooth rollout, make sure to monitor its impact to inform future price increases.