How to Communicate Price Increases Caused by Inflation to Your Customers

The post-shutdown business environment continues to be challenging for many businesses on a variety of levels. One particularly significant issue is declining profit margins in the face of continued price pressures.

During the pandemic, as well as afterwards when inflation was expected to be “transitory,” many businesses resisted raising prices, choosing to accept lower profits and/or cut costs where possible. Now that economists ditched the “transitory” label and high inflation rates appear to be with us for the foreseeable future, businesses are being forced to address those price pressures by raising prices.

But business owners worry (justifiably) that they might lose customers if they raise prices, or raise them too much. Let’s look at some ways to approach price increases while lessening the risk of lost sales.

Image from:

When Should You Increase Prices?

Determining when and how much to increase your prices isn’t always easy. You may be facing cost increases that affect your bottom line, and you might have to create a new pricing strategy in order to maintain healthy profit margins for your business.

Remember: Raising prices without fully considering when and by how much could hurt your business in the long run, so it’s essential to take a well-thought out approach. The right pricing strategy comes from an understanding of your business’s individual performance and needs, as well as an understanding of the market.

Review Your Business Budget

You may find that you can increase your profit margin without simply relying on raised prices. While a price increase is typically the only way to keep up with inflation, you might be able to absorb some costs and adjust your business budget for inflation. Things like eliminating some expenses that might not be essential, reducing interest rates or debts, if possible, and making a plan for income growth. These are all areas that might forestall price increases.

Consider Consumer Demand, Seasonality, and Competitors

Try to understand your business in the context of the market. Your business’s performance and consumer demand play a huge role in pricing efforts. Raising your prices is often more successful if your products or services are in demand.

Don’t forget about your competitors, either. Knowing where your competitors price their products or services, and when they tend to raise or lower their prices, can help determine the correct course of action. You can monitor competitor prices manually (it’s easier if you offer a niche product or service), but you may have more success with a competitor price monitoring software, particularly if you own an e-commerce business.

Seasonality can also influence your pricing strategy. If you raise prices when consumers are typically hit harder financially, for example around the holidays or tax time, you may face more pushback.

Customer Psychology Is Key

Studies have shown that customers expect a fair price for themselves and a fair profit for the seller. But when they believe the balance is unfair, that they are paying too much while the seller makes an excessive profit, they are unhappy and unlikely to continue purchasing the same product from you. Your job as a seller in an inflationary environment is therefore two-fold:

  • Communicating with your current customers so they understand that your profit margin is not increasing at their expense. You also can explain that your products might not even be available if you don’t raise prices and subsequently go out of business.
  • Making sure you are earning a fair profit and your customers can perceive it is fair.

Communicate with Your Customers

The good news, in a sense, is that customers are currently faced with price increases on all fronts. They see it at the pump, they see it at the grocery store, and they hear it in the news, so they are primed to “understand” that your business has to raise prices. Among the steps you can take to help your customers accept the fairness of your price increases are:

  • Don’t be sneaky. Let your customers know in advance that price increases are coming, and explain them beforehand. Have examples ready if possible. You don’t have to breakdown your profit margin details, of course, but simple data points like, “Our delivery trucks drive 1,000 miles a day and it’s costing almost twice as much per mile this year,” are things that customers can relate to and appreciate.
  • Add specific fees if possible, rather than general price increases. We ourselves have recently encountered “food cost fees” on restaurant bills and “gas price fees” on trash pick up invoices. Customers won’t like these, of course, but they shift the balance, as it were, and reinforce the idea that a “fair” price is being paid.

Make Your Prices Fair, in Reality and in the Customer’s Mind.

There are a variety of ways you can approach this, but they all come down to the same thing: deliver an excellent product or service that provides value to the customer even if it costs more.

What are your competitors doing?

Can’t emphasize this enough. Research what your competitors are doing in terms of price increases. Matching that, or even beating it if possible, means that you can communicate what your industry is doing, or they will discover it for themselves if they go elsewhere.

Picture from:

Examine your current prices for underpricing.

Many companies, when they analyze their prices, discover that they actually charge below the market price for certain services or products. If you can find any examples of this in your own pricing, be sure to increase those prices first, since they are effectively a “discount reduction” rather than a price increase.

Photo credit:

Cut costs where possible.

This goes without saying, perhaps, but continue to seek any cost savings that will not negatively impact the customer experience.

Grandfather-in current customers with smaller price increases.

If your current sales model permits it, give current customers a “discount” on price increases, and seek to attract new customers with your “true” new prices. If you are able to provide value to those new customers they will not have a previous bias of what your prices “used to be.”

Give customers less, if that’s better for them.

It sounds counterintuitive, but if your customers pay a fixed price for a package of services and are no longer able to afford that package at a higher price, they may be willing to take less for the same price. In that case, they still get the value they need from your business, while you maintain a similar profit margin on less product.

Tips to Communicate Price Increase Due to Inflation

Consumers never want to pay more for items or services than they pay now. If anything, they want to see prices decrease, not increase over time. While price increases are often necessary, communicating pricing changes upfront can help you maintain a good relationship with your customers. Here are some considerations as you adjust prices to the goods or services you offer.

Be Direct

The best policy for communicating pricing changes is to be direct with your customer base. That could mean releasing marketing materials that discuss upcoming changes and their reasoning. It could be as simple as sending out an email or letter explaining the changes to your existing customer base. Face-to-face communication might be necessary when adjusting prices depending on your business structure or clientele.


Brief Your Team

Make sure your sales and customer service employees are made aware of the changes and are prepared for some negative feedback from customers. Both teams should be working in alignment with exactly how they are communicating any changes with all customers.

Often when customers are hit with the news of a price increase, they’ll be left frustrated. If this is the case, it will be your team’s responsibility to listen and address their concerns. This second round of communication is as important as breaking the news and, in many cases, simply listening to your customers and giving them a platform to express their concerns can solve the issue.

Share in Advance

Consumers don’t like making a purchase only to be surprised by recent price hikes. Let your customers know in advance when you make changes. Doing so gives them time to assess their situation and budget for changes.

Offer Flexibility

Businesses across the country are already under constant stress before being introduced to price hikes from multiple vendors. There are no absolutes in business and there shouldn’t be when communicating price increases either, so try to offer customers flexible options to meet their unique situations.

For instance, if it comes down to keeping or losing a customer, find a compromise by offering an opportunity to sign an 18 month contract, rather than 12, at the current price. People like having options and forcing price increases with zero wiggle room or flexibility can leave a client feeling cornered and looking elsewhere.

Make a Plan

There’s no question that balancing customers’ needs and the bottom line of your business is difficult. Take an honest look at your business, including costs, profits, upcoming goals or hurdles, and the current economic condition. Do your research to determine the best time to raise prices and how much. Make a plan to share any price hikes with your customers early enough so they can budget for any changes. And, finally, be proactive by evaluating budget and pricing throughout the year. It doesn’t hurt to look for ways to save money on your end, including switching suppliers, reducing inventory, and adjusting lead times, as long as you don’t compromise the quality of the products and services you sell.

Similar Posts