Charging more for your business’s products or services can help you keep more money from each sale. But, this decision can impact your sales negatively if you don’t do it in a smart and timely way. 

So when is the right time to increase your prices?

This guide discusses when to raise your prices. We’ll list five signs it’s time to go for it, including:

  1. Your products or services are in demand
  2. You’re not earning enough from your current prices
  3. Inflation is impacting your profits
  4. Your prices are below market value 
  5. You’re expanding and taking on new business costs

5 signs it’s time to raise your prices

Knowing when to raise your prices lets you do so fruitfully. We’ll look at the main reasons that will inform your decision. 

  1. Your products or services are in high demand

It might be a good idea to raise prices if you can do so without isolating or losing customers. When customers are happy, they’re often more loyal to a business. So, satisfied customers might pay more because you’re worth it. 

Reviews are a great way to gauge your customers’ satisfaction. People likely think highly of your business if customers compliment you often or leave mostly positive reviews.  

Additionally, try sending out an anonymous survey to your customers, such as a Google Form. These forms help you learn more about what your customers think. 

Regularly selling out of your products or fully booking your services indicates that your business is in demand. Demand offers you security and wiggle room to rethink your rates. 

With that said, your demand may depend on a fleeting trend or season. If that’s the case, consider raising your prices temporarily to avoid hurting your profits later.

  1. You don’t earn enough with your current prices

Is your business less profitable than you’d like it to be? This could be another sign it’s time to increase prices. 

Your prices, alongside your sales and expenses, make up your profits. So, if your rates are too low, your sales numbers can only do so much. 

Most businesses aim for a 10% or greater profit margin for their products or services. In other words, you’d earn 10% more than you spend to produce and sell your products. So, check the profit margin you earn to see if it’s sufficient.

Ultimately, with higher prices, you earn more from each sale. These prices improve your profits and strengthen your business finances. With that said, you’ll still need to achieve sales to profit from your new rates.

See also: How to improve my sales techniques

  1. Inflation impacts your profits

Did you know that the UK is experiencing a 4.9% inflation rate

Inflation is when the cost of goods and services increases across the economy, decreasing the overall value. Usually, the rates are around or below 2%. But right now, inflation is above normal because of the pandemic. 

With this in mind, inflation may negatively impact the value of your goods. Though you profit the same, those profits don’t go as far when the currency weakens, and everything is more expensive

So, you may want to assess your prices each year or so to adjust them for inflation. For example, you might introduce a 5% increase to strengthen your profit value and keep up with the changing economy. 

  1. Your prices are below market value

When you set your prices for products, it’s useful to know the market value of similar goods, or the average amount customers will pay. Knowing this value helps you set your prices strategically. But market values change. 

Consider checking your product’s market value regularly to see if you’ve set your fees below value. If so, you could raise your prices without pushing away customers because you’ll still have competitive pricing

Similarly, you may have used a penetration pricing strategy when you started your business, offering rates lower than average. 

This strategy is a great way to get your foot in the door and win customers. But, it’s not a sustainable way to profit, and you’ll need to increase your fees eventually. It might be time to do so when you earn a loyal customer base. 

  1. You plan to expand and take on new business costs

Growing your business is another good time to raise your prices. If you plan to expand, you’ll likely take on new costs. 

For example, you might open a new location, introduce a new service, or grow your product selection. These ideas all lead to new business expenses. 

The more you spend on your business, the more you’ll need to earn for it. So to cover costs, you may need to adjust your earnings accordingly by raising prices.

Increasing your rates allows you to improve the value of your products or services through your expansion. As a result, you can do more for your customers, justifying your new prices. 

Know when to raise your prices for maximum profitability 

Are any of the above signs true for your business? If so, it might be a good time to change the price tag. Knowing when to raise your prices lets you keep more cash for your business and sustain healthy finances. 

But, it’s smart to warn your customers when increasing fees. Announcing the change beforehand allows you to avoid shocking or alienating your client base. It also protects your brand, helping you remain reliable and transparent. 

Still, money can be an awkward thing to talk about. If you’re not sure how to let your customers know, check out our article on how to notify your customers of a price increase.

Track your new prices and profits with a clever app

As you increase prices for your business, you’ll need to stay on top of your finances to track your success. 

Countingup is the business current account and accounting software in one app. It automates time-consuming bookkeeping admin for thousands of self-employed people across the UK. 

Save yourself hours of accounting admin so you can focus on growing your business. 

Start your three-month free trial today. 

Apply now.

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