When Should You Raise Rates?
As your business grows, your time becomes increasingly valuable. The rates you set a few years ago for your products or services may have been appropriate at that time, but chances are your expenses have increased since then. It’s quite common for businesses– whether a freelance individual or a large corporation- to be so busy keeping up with demand for their goods or services, they fail to stop at least annually to review and adjust pricing.
If you don’t think you have the time to decide and implement a price increase, consider your overhead:
Landlords increase rents on commercial and residential properties an average of 2-4% at the end of every 12 month lease term. Even if the rate for your commercial space has been locked in, it’s likely you’re paying more for your apartment than you were a few years ago. Homeowners face increasing property taxes and maintenance costs.
The US Energy Information Administration tells us national electric rates are projected to be on the rise through 2020. Statements from the US Department of Energy are just as grim, forecasting a 40% hike in natural gas prices and a 29% increase in fuel oil.
Mercer, a popular human resources consulting firm, is forecasting employee health care costs to rise 5.4% through the end of 2012. Rising employee benefit costs add to the problem. Business owners are also taking a hit on mileage reimbursements, thanks to steep hikes in fuel prices over the past year. Employee turnover and new employee hires worsen the burden of the cost to maintain a staff.
With inflation eating away at your profits, review and adjusting pricing annually is essential. The question is how do you do so in a way that well received (or at least accepted) by your customers?