The Pros and Cons to Raising Prices for your Service Business

Jan 15, 2022 | 0 comments

Business has been anything but the usual these past two years and supply chain issues have been impacting service businesses of all types to where they are contemplating raising prices.

You’ve probably been feeling the pinch yourself lately, with delays in getting what you need to deliver your service and the prices of seemingly everything continuing to rise.

Your cost of goods is going up and labor costs are on the rise. So what can you do about it?

Many businesses are having to raise their prices in 2022 to stay profitable and keep their doors open, and you might be thinking along the same lines.

But there are pros and cons to raising your prices, and before you start making changes you need to think strategically about pricing.

Let’s take a look at the upsides first.

pricing strategy - raising prices

The Pros of Raising Your Prices

#1 Higher margins and profitability

When you raise your prices in proportion to your cost of goods, you end up with more profit. 

#2 Premium Positioning

As people, we use price as a bit of a mental shortcut. We often make the assumption that a higher price reflects a higher value, so by pricing your services higher you can gain a premium position in the market. An extra benefit is that being a premium service does not necessarily mean fewer sales, as your customer base changes to adapt.

#3 Premium Clients

Premium positioning can result in premium clients. Companies and individuals that can afford the higher prices are more likely to have the funding available to buy additional services.

The Cons of Raising Your Prices

#1 Possible Lost Sales

When you raise your prices, there’s a decent chance that your overall sales may go down. Even if your profit and revenue go up as a result, fewer sales can cause disruptions with your staff (you may be overstaffed after the change) and there’s always the possibility that revenue drops if your market can’t adapt to the change.

#2 Negative Feedback

Your market may be used to your current pricing and existing customers may not be too happy about paying more for your services. This can result in some negative emotional feedback (something not everyone is excited to handle) and even negative reviews on social media.

#3 It’s Hard To Backtrack

Lowering your prices (not during a sale) can be difficult. What would your customers say if they paid your higher price level and saw that your business rolled back the price? You can do a lot of damage to the goodwill in your customer base by flip-flopping on your price so you need to make sure it’s the right move before you pull the trigger.

Things To Consider Before Raising Your Prices

Consider adding additional features or value to your products or services to make raising your prices more palatable. You can also highlight a feature of what you already do if it has never really been promoted before. 

Pricing is partly about perception. If you can increase the perceived value of what you’re offering a price increase could be more easily accepted.

Do your analysis before making a change and try to find out if your market will support it. Understand the budgets of current customers and inbound leads. If your customers are struggling to pay your current price, raising your prices won’t be immediately positive. 

Try offering a higher-tier service at the higher price point alongside your existing offerings as a test. If your customers are accepting the new solution, you can phase out the old offering over time. You can even offer your current customers to be grandfathered in if they commit to a contract length or some other arrangement.

Check your infrastructure. Could you support a rush of people that want to be grandfathered in at an older price? Are you willing to cut staff if you lose customers?

The bottom line (pun intended) is that raising your prices may be the solution your service business needs to continue being profitable going into 2022, but you need to go about it strategically before making sweeping changes. 

If you want help in understanding the most important numbers in your service business so you can make changes like this with confidence, we’d love to help you! Schedule your call with us today and we’ll get you connected with an advisor who can get you started.

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