Everything’s getting more expensive.
Utility bills are rising, marketing is getting costlier, and vendor fees continue to rise.
This leaves little profit after you’ve paid all your suppliers, subscriptions, and salaries (if you have a team). Low profits hamper your ability to grow, expand, or pivot your business.
Plus, nobody wants to work forever — we all want to work less and earn more. But while your business struggles to stay afloat, inflation sneaks up on you, eating away at your income.
Translation: it’s probably time to raise your prices.
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The benefits of raising your prices
Higher prices mean you can cover your expenses more confidently.
This means retaining the best staff, expanding your business to new premises, building out new offerings, and upgrading existing equipment and services (like getting faster WiFi).
More importantly, you win back time to plan for the future without taking on more debt.
But it’s not all roses.
The dangers of raising your price
Customers will balk at your price changes. Everyone loves a discount — nobody likes an increase.
Cash flow may dry up temporarily as the market adjusts to your new pricing. More of your quotes and proposals will be rejected, especially in a price-sensitive market.
Worst of all, you’ll beat yourself up when your revenue doesn’t automatically rise as fast as you thought it would.
Why you should raise your prices anyway
Despite the above reasons, there are five reasons why you should raise your prices anyway:
You don’t get what you deserve — you get what you ask for. As a founder, you must permit yourself to raise your prices — there’s nobody else to ask for permission. This mental hurdle is often the hardest to cross.
Your service providers are raising their prices, too — they don’t care about your cash flow problems. To keep up with this rising cost of doing business, you’ll need to raise your prices, lower your costs, or both.
You can always revert to your old pricing if the new one doesn’t work out. Worst case, you lose a few gigs and piss off a few customers. Best case, the market adjusts to your new pricing and you’ve permanently raised your income.
The growth of your business depends on higher revenue — making more than you do right now so you can do more than you can currently. The fastest way to make more than you do right now — without adding new products or switching up your business workflow — is to raise your prices.
Raising your prices forces you to deliver more value to your customers since you have to justify the price increase. This can mean faster or higher-quality service delivery, which only enhances your reputation and gives you more leeway to raise your prices in the future.
How to raise your prices without pissing off your customers
The five-step process for tactfully raising your prices is as follows:
Determine unit prices and margins
Know your business and life goals
Adjust your prices competitively
Communicate the price change
Soften the blow
#1 Determine unit prices and margins
Before raising any prices, calculate the unit prices of your offerings. This calculation hinges on your monthly costs, desired income goals, and ideal work schedule.
Let’s say you offer portrait photography on an hourly basis, with your monthly costs as follows, denoted in Simoleons (§):
At 40 hours a week (160 hours a month), your time costs §13.75 per hour (§2,200 / 160).
If you deliver 10 photos per shoot and spend about 4 hours on each gig for scouting, traveling, shooting, editing, and delivery, then your unit cost per shoot is §55, and each photo costs you §5.50.
Get super clear on your numbers — they’ll come in handy in the next step.
#2 Know your business and life goals
Goals drive gold. A clear idea of what you want helps you work backward to achieve it.
Following our photography example above, let’s say you’d like to work only 20 hours per week (80 hours a month). This means you’d need to charge a minimum of §27.50 per hour (§2,200 / 80) to reach that goal and still break even.
But you don’t work to break even — you work to make a profit.
Let’s further assume you want to earn at least §4,000 per month. This means you’d need to charge at least §50 per shoot (§4,000 / 80), leaving you with §1,800 in monthly profit.
Those margins and profits give you breathing room to save up for an extra camera, hire an assistant, and spend more on marketing.
More importantly, they cushion the blow of unexpected expenses — a lost gig, broken lens, or urgent emergency.
The extra money also means you can save for a rainy day, invest, or spend more time with friends and family.
#3 Adjust your prices competitively
‘Competitively’ in this context means pricing according to your desired positioning and the market.
You may be a low-end product seeking to command higher premiums. A higher price sends the right message and filters out low-paying customers.
But the market also affects how much you can charge for something.
If you charge §100 for a fungible product (i.e., easily replaceable), and other competitors who are as good or better than you charge §50, you’ll have a hard time convincing anyone to buy from you, no matter how premium you want to position your brand.
This is where the principles of luxury marketing come into play. You can highlight your higher quality, better processes, or rich history and pedigree.
After all, all soaps clean, but some soaps are better than others.
#4 Communicate the price change
Once you’ve done the math, it’s time to inform your customers of the price change across as many channels as possible.
This can mean:
Communicating the increase in your newsletter
Posting the price change on social media
Updating your website’s pricing table
Putting up posters on your premises
Informing your suppliers or resellers
Sending a broadcast text message
Updating your WhatsApp Stories
Do all of this at least a month in advance, especially if you have retainer or subscription clients. You don’t need to explain yourself extensively — the following template should suffice:
Please note that we're increasing our prices by 20% as of [date]. This increase will allow us to cover our costs, ensure continued growth, and improve our services.
We appreciate your support and understanding. If you have any questions or concerns, please feel free to reach out at [email address].
This brings us to the last step:
#5 Soften the blow
You can soften the blow for your customers through grandfathering and bonuses.
Grandfathering means your current subscribers are exempted from the new price. If you’ve ever bought a lifetime deal for a software tool (like on AppSumo), you know how beneficial this is as a buyer.
As a seller, you gain lifetime loyalty and free brand ambassadors who are less likely to switch to a competitor.
You can also time-box the grandfathered discount by giving current customers time to enjoy the old price (say, for 12 months) before you upgrade them to the new price.
Bonuses grant customers who switch to your new price before a given date a little extra product.
Let’s say you sell one bag of garri for §20 and plan to raise the price to §30 per bag next week. You can offer to sell two bags of garri this week only at the new §30 price to drive last-minute purchases. Thereafter, the price reverts to §30 per bag.
Petrol stations do the same thing — think of all those long queues on the night before a petrol price increase.
Bonuses drive urgent action and play to buyers’ sense of greed and loss aversion (“Buy now and gain extra or risk losing out on a good deal”).
Don’t be afraid to raise your prices
No matter your business, you’ll need to raise your prices at some point. Business growth doesn’t happen without additional time and effort, both of which need money.
By calculating your unit costs, aligning your future goals, communicating with customers, and softening the blow, you can kick off the next quarter or year with higher pricing, more revenue, and more room to grow.
This is such a great piece and much needed as we observe an increase in prices. The grandfathering definately my favourite part hehe, will look into that, it can build brand loyalty.
Love this. It’s like sieving the flour to get rid of lumps.
Having to serve many clients is exhausting. You split your energies among too many projects, and don't accomplish any of them in the way you would like too.
From my personal experience, when money is off the table I’m relaxed, my performance is much higher.
With the lower pricing it’s hard to feel this way and enjoy my job.