E-commerce giant Amazon made news recently by announcing plans to raise the price of its annual Prime membership from $99 to $119. Considering the benefits of the Prime membership, it doesn’t seem like much to complain about (especially since the difference adds up to less than $2 per month).
But that didn’t stop people from complaining about the price increase online and elsewhere.
If even Amazon faces blowback when it raises prices, how can a small business hope to do the same?
Thanks to rising costs of labor, energy and borrowing money, however, many small business owners are faced with the choice to either cut profits or raise prices.
Here are 5 tips for increasing prices without inspiring rage.
1. Tell the truth.
More and more customers are willing to pay a bit extra for products or services they deem worth the cost. Clothing retailer Everlane, for instance, enjoys massive success among millennial consumers by promoting its commitment to using sustainable fabrics and ethical factories. Everlane can charge more than competitors for its clothing because it’s transparent about the worthy reasons for the higher costs. Let’s face it: When you raise prices, customers will notice—but they’re more likely to accept the change if they know the extra money means a better standard of living for your workers.
2. Do it gradually.
A common tactic to raise prices without alienating loyal customers is to raise prices for new customers only. But when new customers find out about the price difference, they could be miffed, too. Amazon is giving current Prime members until June to renew their memberships at the $99 annual rate. After that, they’ll pay $119 just like new members. Ultimately, make it your long-term goal to have all customers paying the higher price.
3. Consider timing.
If you’ve just had a wave of customer complaints or gotten a bad review that went viral, it’s probably not the time to increase prices. Wait until you’re confident that most of your customers are highly satisfied. Test the waters by doing some customer surveys to confirm they value what you offer and are happy with your business. If you get a lot of negative feedback, make some changes before you even think about raising prices.
4. Use add-ons to boost prices.
Last time you bought a piece of electronic equipment, were you offered an extended warranty or service contract, batteries, or some accessory to go with your purchase? Small items can add up fast, making add-on products or services a great way to increase your income.
For instance, I’ve noticed many restaurants offering “extras” like avocado on a sandwich or chicken on a salad for an extra cost. If your menu features a $10.95 chicken Caesar salad, change it to a $9.95 Caesar salad—with the option to add chicken for $2 or salmon for $4. Suddenly, the same basic salad costs $11.95 or $13.95, depending on the selection of protein. You can also keep the price of your core services or products steady and raise the prices of add-ons. For instance, restaurant customers are more likely to notice if your entrée prices go up than if your beverage prices rise.
5. Say goodbye to products, services or customers that aren’t profitable.
Although you’re not raising prices, the end result is the same. Monitor your financials, and keep tabs on which products and services have the lowest profit margins. Unless they’re loss leaders that attract customers who buy high-margin items too, cutting out these low-margin items makes your business more profitable by allowing you to focus on the high-margin parts of your business.
Do the same with customers. Which ones are most profitable? It may not be who you think. If you have high-maintenance, low-margin customers, it’s time to raise their prices—or cut them loose.
Need help figuring out how to raise your prices? SCORE mentors can offer free advice and consulting.