Stay Competitive by Setting Time to Review Prices

Author: Prosperity Bookkeeping LLC |

Blog by Prosperity Bookkeeping LLC

Anyone who buys eggs, bacon, and sweet rolls for Sunday brunch quickly realizes that inflation is hitting their pocketbook. Consumers are paying more for products and services in 2022, compared with 2021. The Consumer Price Index rose 8.3% from August 2021 to August 2022, according to the Bureau of Labor Statistics. Small businesses are not immune to inflation. Today, it costs more to borrow money, travel, rent office space, buy insurance, and pay for other business expenses. A tight labor market is pushing wages higher. How is your small business responding to inflation? Have you raised prices to cover these added expenses? If you haven’t raised prices in over a year, you’re overdue. You’re missing out on money-making opportunities that can sustain your business long-term.

When Is It Time to Review Pricing?

Pricing is the foundation of the monetization strategy of a small business, yet business owners often overlook its potential impact. Simply put, as your business changes, so should your prices. Every 6-12 months, it’s time to identify what changes have occurred in your business and develop a pricing plan that aligns with these changes. For new companies, the timeline is shorter. New companies should conduct a quarterly review of their price structure and adjust prices every 6 months.

What is the Best Strategy for Price Increases?

Although small businesses adopt new pricing in intervals, the strategy behind the price increases are ongoing, even daily. To determine the appropriate price point:

  • Learn about your industry
  • Understand your customers
  • Evaluate economic and market trends
  • Calculate how pricing changes affect your small business
  • Talk about pricing with all departments, especially marketing, customer service, sales, and product development. Update every department when enacting a price change.
  • Brainstorm pricing strategies with your team, your bookkeeper, and your business consultant

How Do Businesses Determine Price Point?

Instead of relying on guesses, use financial data, one good reason for accurate, up-to-date bookkeeping. To do so, review data from the last time prices changed. Which prices changed, how much, and why? How did customers react?

Which Pricing Method Should My Business Use?

Minor increases in pricing, as little as 1-5%, can substantially increase your bottom line. If you’re trying to grow your small business but you’re not updating prices, it’s time to act. The specific timeline for price adjustments depends on your company’s growth stage and business strategy. So, take some time to evaluate a price that aligns with your product or service. Adopt a system of value-based pricing instead of cost-plus pricing or competitor-based pricing. Cost-plus and competitor-based pricing don’t directly reflect the consumer’s experience with your product or service, whereas value pricing does. Determine the value your customer receives, and base the price on this amount.

How Do I Tell Customers About a Price Increase?

No customer wants to pay more for products or services, so be sure to communicate a price increase with care:

  • Foster customer relationships based on open communication, honesty and trust
  • Contact customers directly, and consider talking to price-sensitive customers personally
  • Alert customers in advance so they have time to readjust their budget
  • Explain the reasons for the price increase using easy-to-understand terms
  • Focus on the value by explaining how the quality will remain at the same high level or improve
  • Genuinely thank customers for their understanding and their patronage

Contact Us for Business Finance Tips

Ultimately, your goal is to enhance customer loyalty. Increasing prices without letting customers know will harm the relationship you’ve built with them. This opens the door for them to work with your competitor. Instead, be upfront about price changes. Explain to customers why doing business with you is still in their best interest.

For more business tips, financial advice, and a full line of bookkeeping services, contact us. We provide a proven process that will have you spending less than one hour per month on bookkeeping-related tasks.

About the Author: Once a mild-mannered reporter and editor, Joan Koehne took on the persona of her alter ego, Wonder Writer, to launch Writer to the Rescue, the content writing division of Packerland Websites. Wonder Writer is “saving the world one word at a time” with power-packed content marketing for digital and traditional media outlets.