Whether it’s food or energy, prices are continuing to rise in the UK, and businesses are by no means immune from the effects.
Even with the government’s Energy Bill Relief Scheme reducing gas and electricity costs for UK enterprises, the outgoings for operating your business are likely still on the rise.
Unfortunately, these costs will have to be paid for somewhere. And, while your business may be able to soak up a certain margin, there’s a limit before you’ll need to consider increasing your prices to ensure you stay afloat.
This is not necessarily a bad thing – many businesses choose to change figures every year to keep them in line with inflation – but there are some additional considerations to take into account ahead of putting the burden onto your customers and clients.
Make sure you ask yourself these five vital questions before increasing prices in your business.
1. When did you last raise prices?
Firstly, consider when your last price increase was. Has it been years since you last did so, or was it a fairly recent change?
Raising prices regularly might make your customers feel as if you are deliberately profiting from the circumstances, even if this is not the case.
Either way, remember to fully communicate price increases to your customers. Transparency is only ever a good thing in these situations, and your customers will hopefully understand the difficulties facing businesses in the current climate.
2. How essential are your services?
Next, think about how necessary your services are for your customers.
Many businesses are less prone to changing prices, as customers need their products. For example, food, pharmaceuticals, and energy are all necessities that consumers need, forcing them to soak up increases in costs.
Similarly, your offering may have become part-and-parcel of how another business operates, meaning they’re almost entirely reliant on what you do to continue working.
Fully scrutinise how essential your offering is, and whether you think your customers can survive without it or go elsewhere to find it. This may partially dictate whether you can raise your prices, and by how much.
3. What are your competitors doing?
Looking at what similar businesses are doing can be a good water test for whether you should increase prices.
If all of your competitors have raised prices because supplies or materials that you use have become more expensive, it may make it easier for you to justify increasing yours, too.
You might also be less likely to lose customers in doing so, as they’ll face increased costs no matter where they go for the services you can provide.
Similarly, consider your market position relative to your closest competitors. If you’re the leader and innovator in your sector, customers may be willing to pay more for your services.
Meanwhile, if there are larger businesses that you’re competing with who have raised prices, keeping yours fixed or lower could present an opportunity to grab a portion of their market share.
4. Can you save money by going down other avenues?
When costs are rising, it’s obviously vital for the health of the business to maintain margins. But there are other ways to ensure profitability than simply asking for your customers and clients to pay more.
So, rather than increasing prices, examine whether these alternative methods could be more effective.
For example, you could look at areas where you can trim the fat from your expenditure. Could you pay less for your business premises, or on the materials you use? These changes can have just as strong an impact as increasing prices, except without the risk of upsetting your customers.
Alternatively, could you maintain prices and instead make your product smaller or reduce the service a customer receives? This gives the illusion of prices remaining steady while you cut back on operating costs per customer.
You could also tier your pricing structure so that only certain customers end up paying more, keeping the rest of your client base happy and at the same price as before.
Sometimes, even spending money can deliver positive results. So, increasing your marketing spend to attract customers might be more appealing than raising prices, boosting your bottom line through new sales rather than asking existing clientele for more.
5. How will a price increase affect your cash flow?
Above all else, consider how the increase will affect cash flow. You might want to model various scenarios for what different price hikes will do to money moving in and out of your business.
By having this information to hand, you can then choose whether to increase prices and by how much based on the evidence. It might also show you the need for offering incentives to your customers in return for the upturns, perhaps using a loyalty scheme or bonuses for purchases.
Be sure to track how the increase affects the business, including how much money you make and how many customers you retain. Having actionable data like this to hand can inform the decisions you make moving forwards, and might help you decide whether you need to readjust prices again if an increase has a severe negative effect.
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This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.