In 2016, Starbucks raised its prices not once, but twice! Of course, they took grief for it from some customers. Others were quick to point out that with everything you get from a visit to Starbucks and what they deem the “largest co-working space” in the U.S., it is not that bad of a deal. While another Twitter user pointed out that they are offering value, not cheap coffee.
When asked about their increase in prices, Starbucks told CNBC that the average customer’s receipt will only increase by 0.5%. They further explained that they needed to balance their business needs while still offering value to their customers. What they did not do, was apologize for it!
Price hikes are always a delicate business decision to make. You do not want to raise your prices too high and scare your consumers or clients off, but you want to, as Starbucks puts it, address your business needs. Your loyal customers will understand if they value your product.
Why should you raise your prices? First, it is a matter of attracting the right clientele; you do not want customers that are only willing to pay bottom-barrel prices. That only reflects poorly on your product. Second, you should always be taking into account your supply and demand. If you are really busy or cannot keep up with product demand, it’s likely time to consider raising your prices. Grow, baby, grow, right?! If you are employing any of our favorite analytics for growth (LTV, PBP, funnel velocity) you will know when you have outgrown your price. Lastly, a price hike is occasionally mandatory for general cost of living increases or operating expenses. It is also worth pointing out that you can shift the value and price of your product without changing the actual costs to make it. Increasing your profitability should always be an end-goal.
Three Ways to Raise Your Prices without Apologizing
- Pick Your Timing Wisely
Choose the path of least resistance. Pick a time to raise your prices that matches your business’ seasonal cycles, or stage of growth you are in. Then, give advance notice. Do not spring the price increase on your clients for the next billing cycle. Even if you are not selling a service, it still bodes well to give some warning. Arm your sales and marketing teams with enough time to prepare for the change in price.
- Explain Why You Are Raising Your Prices
As we saw with Starbucks, most reasonable customers will understand why you are raising your prices if you are transparent as to why. If raising your prices brings growth to your business, explain how this will benefit your consumer. Demonstrate to your customers what you have brought to the table so far and how you will benefit them in the future.
- Offer Value
A skill to hone before raising your prices is how to showcase your value to your consumers so they are more concerned about what you are offering than the price of the product or service you are selling. This means first understanding your marketplace. However, once you do, you will be able to determine a way to offer even more value to your customers. This will instill a confidence in your services or product regardless of an increase in cost to the consumer. As author and sales trainer, Grant Cardone puts it, “price is what you pay, value is what you buy.”
“Price is what you pay, value is what you buy.”- Grant Cardone
Finally, we like numbers, so let us throw some at you. Sticking to our caffeinated theme, let’s pretend you are a coffee shop that does $1 million per year in sales at your store. Your average consumer spends $4 on your java jolt, which means you had 250,000 customers walk through your door last year ($1 million / $4 each). Your goal is a 5% increase in sales for next year (a $50,000 increase in sales).
You have two main options to achieve this goal:
- Get More Customers in the Door
If you take this approach, you need to somehow get an additional 12,500 customers in the door ($50,000/$4 each). That’s about 34 extra customers every day. Not an easy feat for a store that has a stabilized traffic pattern of customers.
- Alternatively, You Can Raise Your Prices
With this approach, instead of charging everyone $4.00, you would charge them $4.20 (a 5% increase). And then you wouldn’t need any additional customers to achieve your goal! Instead of focusing on finding more customers, you can then focus on making your current customers even happier and bringing them back more frequently. This increases the value of your product, which your best customers will truly appreciate.
So… go ahead, raise those prices, no apologies necessary.
Contact us with more questions about pricing.