How to adjust your prices for inflation

Have you noticed everything has gotten a bit more expensive lately? That’s inflation doing its work. This situation likely increases your business costs, negatively affecting your overall earnings. 

So what can you do? Inflation is a sign to raise your small business prices. As a result, you can strengthen your profits and support your business’s long term financial health. 

This guide covers how to adjust prices for inflation. We’ll cover why it matters and how to: 

• Calculate inflation 
• Reprice strategically
• Notify customers of the increase
• Create a long-term plan 

Today, the UK Inflation rate is higher than it has been in a long time, with a 5.5% rise in the consumer price index (CPI) over the last year. The CPI measures how much products and services cost. Inflation spikes it, decreasing the value.

With this drastic rise in costs, adjusting your prices is more important than ever, especially for small businesses. If you cannot adapt to the changing economy, you may struggle to keep your business afloat. 

But inflation doesn’t just happen when the economy is weak; it’s a constant as costs naturally increase over time. A pound today won’t get you as far as that same pound did ten years ago. 

As the value of currency lessens, your profitability decreases and business costs increase. So, your business must change with it to survive. 

Knowing how to adjust prices for inflation is essential to the success of any small business. Let’s go over the main steps.

Before adjusting your prices, you’ll need to know the inflation rate (currently 5.5%). This percentage can inform how much you need to increase your fees to maintain profitability. 

You can also use the Bank of England’s Inflation Calculator to plan future pricing.  

Then, consider which business expenses are impacted most by inflation.

For example, if you drive to meet clients for your business, you might notice that your fuel costs have spiked. Or you may have experienced a price increase from your product supplier. Factor these changes into your adjustment. 

Once you understand how inflation affects your business financially, you can use that information to reprice your products or services. 

A great way to do this is by using the inflation percentage as a guide. For example, you could introduce a 5.5% price increase. Alternatively, you might calculate the rate your business expenses increase and use that percentage. 

As you increase prices, it’s important to do so strategically to avoid losing too many customers. If you increase fees drastically without a plan, customers may feel betrayed and turn to competitors.

Consider incorporating one of the following strategies:

• Competitive pricing – rates above, below, or in line with market value or competitors. 
• Premium pricing – rates above average to signal higher value or exclusivity.
• Dynamic pricing – rates that vary depending on the current market value.
• Bundle pricing – several price options based on package or level to increase accessibility and match customer needs.

Alternatively, you could boost profits in specific areas rather than increase all products or services rates. 

You might charge the same for top-selling or value items’, and increase rates for products that cost you the most. Otherwise, consider raising shipping costs or introducing new options, such as an ongoing membership. 

So you’ve outlined a pricing strategy for your products and services. Next, you’ll need to let your customers know. 

To do this, try sending out a direct communication of your upcoming price change. It’ll be easier for people to accept if you make it clear and friendly. You might even want to include a helpful guide. 

Notify your customers well in advance of the increase, so they have time to prepare for it. For example, if you plan to increase your prices in May, try notifying people in March or April. 

When letting customers know, you might also want to offer a discount or reward to maintain loyalty. Also, be sure to update any informational pages with your new rates, so there’s no misinformation.  

To learn more, check out our article on how to notify your customers of a price increase.

As we’ve mentioned, inflation isn’t a one-time thing. It happens continuously, though usually at a slower rate. So, it’s important to consider a long-term inflation plan for your business.

To do this, outline your strategy to repeat it each year. Also, be sure to measure the plan’s success to tweak it for the future. 

Say this year you increase all your prices but notice a dip in sales. Next year, you might try to focus on certain products or services. 

If you choose to adjust prices yearly, try to do it at the same time each year to maintain reliability. 

You can adjust rates more smoothly and efficiently when you plan ahead. As a result, you’ll satisfy customers and maximise profits.

Now that you know how to adjust prices for inflation, you can do so wisely. Your new rates will help you profit well from your business without alienating your customer base. Just remember to: 

• Remain aware of inflation rates
• Set prices that work for customers
• Be transparent about your new prices 
• Develop a long term and repeatable plan

With your new prices, you can strengthen your finances. Similarly, more sales can help you grow your revenue. Why not check out our article on how to boost business sales next? 

It’s much easier to stay on top of your price adjustments and overall earnings with the right accounting tool.  

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.