Almost every day now, our social media feeds and news sources are full of stories about how inflation and rising costs are impacting our economy at large as well as individual people and businesses. As the basic costs of running your business rise alongside day-to-day essentials, it’s not hard to see why many vendors are increasing their prices. But what can you do when those increased costs leave you between a rock and a hard place?
How Inflation and Rising Costs Impact Businesses
Inflation and rising costs impact businesses in two main ways: the cost of materials, including raw materials and the tools you need for your business to function, and the cost of labor. While any one of these costs may still impact your business, all of them increasing at roughly the same time can put a strain on your finances and further reduce your profit margins.
The cost of materials may go up because of increased costs for your suppliers, such as shipping costs or the cost of raw materials. If your business relies on imported products, these costs may increase suddenly as tariffs and exchange rates shift. Whether or not your business sells physical goods, you will also be impacted by increased energy costs, from gas to electricity. The power it takes to keep a printer or point-of-sale system running may not seem like much, but it can add up over a month and turn into a hefty bill. Even relatively modest increases in the price of energy can impact your bottom line.
The cost of labor often increases as the price of essentials that people need to pay for, such as housing and groceries, go up to the point that what used to be a very comfortable wage may not even be a living wage anymore. As a result, workers may negotiate for higher pay or walk away, in which case the business now has the cost of hiring and training a new worker.
Pros and Cons of Raising Prices
With all of these higher expenses, you might be considering raising your prices. Without context, it seems like simple math: when costs go up, your prices go up to maintain solvency and some profit margin. However, your customers might disagree, especially if they feel that your price increases blindsided them. Here are some of the main pros and cons of raising prices that you should know about before you make a decision:
Pros of raising prices:
- Higher prices may absorb the financial hit of higher costs.
- Increased profit margin.
- Opportunity to stay ahead of increased labor costs to keep your employees’ pay competitive.
Cons of raising prices:
- Your business may lose customers who don’t think the value of your product or service matches your new price.
- Customers who are also struggling with increased costs may decrease their spend.
- Your growth may slow down because potential new customers are price-resistant.
Making A Price Increase Work For You And Your Customers
There are several ways you can make a price increase as seamless as possible for you and your customers. However, one of the things they all have in common is a consistent and thought-out price increase strategy. If you scramble to increase your prices, you may increase them too much and drive away valuable customers or increase them too little and have to do another price increase just a few months later. As hard as it may be, take your time to really plan out your price increases to ensure the best possible outcomes.
Once you know what prices you’re going to increase and why, it’s time to start communicating and implementing that change.
- Tell Your Team: Before your clients hear anything about an upcoming price increase, you should communicate with your team. This might include employees, contractors, and any outside vendors that communicate with your customers. That way, your team can confidently answer any questions people may have when you announce your price increase publicly.
- Give Clients a Heads Up: It’s important to let clients know ahead of time when you are raising your prices. How much information you give is up to you, but many companies get a more positive response when they emphasize their brand’s value proposition. Consider showing off all of the ways your products and services have improved over the years.
- Tell Recurring Clients How This Impacts Them: If you have recurring clients, such as people who subscribe to your services or place a monthly order with your business, consider sending them an individual email that breaks down exactly how this price increase will impact their costs. That way, they won’t be started when their charge goes up.
- Keep Lines of Communication Open: Before, during, and after your price increase, make sure you’re available to talk with customers about what they think! Feedback may be hard to listen to at times, but making your customers feel heard is an important way to build trust with them.
Managing Costs and Price Increases in Unsteady Times
It may seem like things are constantly changing, but your business has likely weathered unsteady times before and will again. By being thoughtful about price increases and keeping track of your own increasing costs, you can help your business remain stable and even grow no matter what the future holds. If you need help making sure your value proposition is clear and your marketing can keep delivering results, check out our services at Matcha Design.
