Should You Increase Prices Due to Inflation?

Dealing with inflation can be tricky business for small businesses. Since the beginning of the pandemic, inflation has skyrocketed, impacting organizations across the country. But, is raising prices of products and services the solution to inflation? It depends on your business.

The impact of inflation on small businesses is situational, and some cases are more extreme than others. As a business owner, you have to find the fine line between making a profit and not damaging relations with customers or clients.

You may have resisted raising prices until now, but it might be a necessary business move as high inflation rates appear to be with us for the foreseeable future. One tactic you’ll want to avoid is increasing costs across the board right away. Start slowly and always keep the customer in mind.

Too much of an increase in prices might push customers away and damage the business-consumer relationship. Two ways to protect this relationship are:

1. Communicate - Let the customer know the reasons behind the price increases, that it’s not at their expense, and that it’s necessary to sustain the business.

2. Be Fair - Customers don’t like feeling taken advantage of by businesses who raise prices to earn more of a profit. Make sure that your prices are fair, and you’re more likely to see repeat customers

Four Responses to Inflation

1. Research Your Competition - Take a look at what your competitors are doing in response to inflation, and try to match or beat it, if possible. This shows your customers that inflation is impacting the industry across the board and it’s not just your business that is increasing costs.

2. Examine Current Prices - Analyze your current prices, as you may be charging below market value for some items or services. If you find this to be true, raise those prices first as they are considered a “discount reduction” rather than a price increase.

3. Invest in Customer Service - Customers like to feel taken care of and they are prone to be more loyal to brands that address their needs in a thoughtful manner. Customers may have concerns over price increases, and your employees should be trained to handle these concerns in a prompt and proper manner. Consider investing in customer service training for your business to be equipped for these situations.

4. Cut costs where possible - Increasing the prices isn’t the only way to address inflation. Take a look at the product design including materials, packaging, and product features to see what you can change. The goal is to be more cost-effective while maintaining the functionality and quality that your customers are looking for.

High inflation rates are impacting businesses everywhere, so it’s time to figure out what that means for you and your business. Is raising costs the right move? Let us help you out. Contact our team of expert accountants and book a consultation today for advice on how to better your business and address inflation.