Whether it's the holiday sales or the fresh start of a new calendar, we love ringing in higher prices along with the new year. I'm guessing you have considered this in your business, too, and if you still haven't decided if this is your year for an increase, let me fill you in on some of the brain science to help you determine if a price increase is right for you right now.
First, let's start with a reframe of the question at hand. Many people ask, "Can I raise my prices?" And the answer is yes. As a general rule, any business can change its prices at any time. As I've shared before, pricing is never about price.
Everything that comes before the price matters much more than the price itself. So, if you frame the new price properly (which often means not addressing it), people will pay it without concern. When you do this wrong, they will balk and complain. Even if the price shift is exactly the same in two different scenarios, the context makes all the difference.
The real question you should be asking is "Should I raise my prices?"
This is a different question entirely, and the best way to find the answer to that question is starting with motivation and one more question. Ask yourself, "Why do I want to raise my prices?"
If it's about availability:
Whether you have a service with limited time or a product with limited quantities, the rules of supply and demand still apply. If there is a high demand and you can show that, people will gladly pay more for it. Not everyone, mind you, but that's actually the point. When there is too much demand (you are working too many hours or there is a ridiculously long lead time on your offering), you want fewer people trying to take advantage of your offers. This allows you to offer better service while earning more.
And the best part is studies show people actually get higher value when they pay more for things. When done right, this can be the ultimate win-win-win.
If it's about revenue:
Increasing revenue, whether it's because of your own costs going up or simply needing to make more per sale, is a different story. When it is about overall profitability, ask yourself, "Is there another way to increase revenue without impacting customers in a way they will notice?"
Yes, you can (and should) look at expenses and back-end areas to cut costs. That is always a great place to start, and if you can make up the difference that way, great. But I'm talking about looking for creative ways to increase profits on things people don't notice as much.
Credit cards are a great example of this. When a bank adds a monthly service fee, their customer base is up in arms. What about when the rates go up by 1 percent? Most people don't even read the disclosure, and if they do notice, they shrug this off because the brain is lazy about this sort of math. The frame changes the amount of pain felt by the brain. A fee feels more tangible because you know what $5 translates to immediately, while a percentage of an ever-changing balance is more abstract.
In reality, the rate increase could bring in more revenue for the financial institution overall. It might require more work for a few key staff on the front end, but it could be worth it and result in its own win-win: more revenue without customers even noticing or caring.
In your business, where are you forcing a solution that isn't going to land well with customers, and how can you shift it to improve your revenue (without changing prices)? What is your win-win?