After a few years of selling your products and/or services at the same prices, you may decide that a price increase is in order to better reflect the rising costs and current market trends in your industry. However, after working hard to grow your client base, it's understandable that you would be worried about how to do so without losing customers, because usually when sellers increase their prices, they tend to hear complaints from long-term customers.
That said, the financial needs of your business come first. You will not be doing your clients any favors if you run out of funds and have to cut back on product features and/or other services.
Consider this eight-step plan to raising prices successfully while keeping your customers happy.
Step 1: Study the Competition
Looking at how price changes have affected your competitors’ businesses can help you answer essential questions, like how the price hike was received by consumers and how it impacted their business over a period of time. You may notice that while initially there was a drop in users after a price increase, the number of customers possibly went up over the long term.
Step 2: Do the Math
Even though a price increase might seem like a good way to increase revenue, you must consider other factors, the most important being how raising prices will impact your company.
A price hike will only make sense if the money it brings in outweighs the money lost from users that churned out. According to research by The Economist, a business can successfully increase prices “up to a certain point” without experiencing a decrease in value. However, if the increase is over 20 percent, it could lead to a decline in volume, which will negate the increase in revenue.
Step 3: Time the Price Increase Well
The best time to raise prices is when the majority of your customers are extremely satisfied, and not when you have received some type of negative publicity or a bad online review that got a lot of attention from the general public. Try surveying your users beforehand to confirm that what you offer is of value to them and that they are satisfied with your company and its offerings. If you do find dissatisfied customers in the course of your survey, try to fix those issues before even considering charging more.
Step 4: Roll out the Increase in Stages
Since price hikes can lead to a decrease in customers, it is a good idea to spread these changes out. Applying price increases on differing schedules gives customers time to adjust to the impact. So, while the number of users may decline initially, you should start to see positive results over time.
Many companies, especially water and energy providers, tend to announce an increase in price and then explain that the price hike will be implemented in stages over time to soften the blow.
Step 5: Communicate Your Plans
When making any changes when it comes to your business, it is usually a good idea to explain to your customers your reasons for doing so upfront. This is especially true when it involves a price increase.
Cite measurable reasons for the change and always use objective language in your communication with customers. Show them where their money will go, from upgrades, new user experience design/user interface design (UX/UI) additions to new features, better back-end dependability or any other incremental improvements. Most people do not mind paying for improved quality and service, and a direct approach is likely to convince them of your efforts to stay competitive.
Step 6: Add Value
Adding value to your product and/or service gives you a reason to review pricing with your users. Most will understand that with time and improvements/growing features, the pricing will invariably change. Therefore, ensure that your product and/or service has more to offer consumers than when they first signed up before considering a price increase.
Step 7: Reward Long-Term Customers
If you are not sure how your longtime customers will react to price changes, consider some kind of loyalty program for them or offer exclusive perks or enhancements. One way to reward such users is to lock in the subscription rates that they are currently paying for a set time period while increasing prices for new customers. For example, in 2018, when Amazon raised the price of its Prime membership by 20 percent, they gave existing members the chance to renew at a lower price.
Step 8: Diversify Your Offerings
For users who refuse to pay more, you can try adding different packages or options at a lower price or reduced value to help them stay with your company. These special packages with lower price points may also be attractive to new customers who might not want to use your offerings after hearing about the price increase in the media.
Hope for the Best, Prep for the Worst
Customers who are solely focused on price are likely to stop doing business with you. However, sometimes increasing prices may attract new, more profitable customers who do not mind paying a higher price for better quality. And once you’ve taken the steps for an effective rollout, make sure to monitor the impact of your pricing increase for any future rollouts.