The cost of doing business is going up. Here is why you should increase your prices.
On LinkedIn I ran an informal poll. 62% of respondents said their company implemented one or more price hikes over the past 12 months.
That correlated with what I saw last year. Approximately 60% of Sticky Branding’s clients implemented price increases in 2021.
You Should Increase Prices in 2022
Inflation hit a 40-year record in June 2022, with consumer prices increasing 9.1% over the last 12 months, according to the US Labor Department. It’s the fastest increase in prices since November 1981.
When you dig into the numbers it gets even more troubling. Comparing January 2020, pre-pandemic prices to today:
- Gas prices are up 59%
- Steel is up 233%
- Aluminum up 186%
- Freight rates up 473%
And companies are passing these rising costs onto their customers. They have to! Businesses aren’t sustainable when their operating costs balloon rapidly.
Even software and technology companies are not immune from inflation. Wages across all industries jumped by 4.5% in 2021, with the tech sector experiencing the biggest spike with median salaries rising 6.9%.
Anecdotally, Sticky Branding’s clients have been grappling with ballooning wages for skilled or hard-to-find positions, with salary demands jumping 50% from pre-covid levels.
With rising costs and slowing economic growth, managing your business’s profitability is essential. Avoiding price increases now can be riskier than implementing them when it’s too late.
Raising Your Prices Is Strategic
Inflation has real implications for your business and its profitability, but also for your marketing.
In boom or recessionary times, implementing price increases can be risky. But when your customers are getting price increase notifications several times a year, it’s starting to feel “normal.”
Approach price increases through the lens of strategy.
1. Over-Communicate and Give Plenty of Warning
Give your customers as much warning as possible. I like 90 days, because this gives you time to communicate the change to all of your customers, and have one-to-one and direct conversations with key accounts.
More importantly, give your customers an opportunity to “buy now” before the price increases. This is an effective sales campaign to create a lift in quarterly sales.
2. Set Clear Payment and Delivery Terms
One important tip: Don’t allow a “buy now, ship later” option with a price increase announcement.
Set clear payment and delivery terms, ideally less than 90 days, to avoid delivering products at a loss in the future.
This requires hard thinking and clear negotiating. Don’t let customers push you into unprofitable situations simply because they are “big companies.”
3. Don’t Be a Martyr Brand
Many companies avoid price increases out of fear. You’ll hear things like:
- “Our customers will switch to our competitors.”
- “Our competitors aren’t increasing their prices.”
- “We’ll lose sales.”
It can be uncomfortable to increase prices, but it can be far riskier to avoid increasing them. We’re talking about the long term sustainability and profitability of your company. You’re making hard choices today for your company’s future.
Be the brand leader that defines your category.
4. Focus on Differentiation and Intrinsic Value
Now more than ever, competing on price is a weak strategy.
Focus on value and increasing your connection with customers. This will be achieved in your operations:
- Increase your production capacity and ability to deliver your products faster than the competition. Speed and reliability are key differentiators with ongoing global supply chain issues.
- Increase your customer service and responsiveness. Think of customer service in terms of “proactive service” versus “reactive service.” How do you delight your customers?
- Outmaneuver your competition by being the better business, the one your customers will rely on when they need you most.
In periods of rapid change, there will always be winners and losers. Now is the moment to lead your industry to win.
With rising inflation and economic uncertainty, managing your company’s profitability, cash flow, and pricing strategies are essential skills. Price increases may not apply to every business, but for most of us price increases are on the table for 2022.
This is part of your strategy. If you have pricing questions or would like to talk about your strategy send us a note. I’d be happy to schedule a free 30 minute Strategy Session with you.