How to manage a price increase and keep your customers

Published Monday 26 January 2026

Table of contents

• Reasons for increasing prices
• Risk of not increasing prices
• Stages of making a price increase
• Alternatives to increasing prices
• Experiment with pricing
• Make price increases work for your business
• FAQs on price increases

Key takeaways

• Implement gradual price increases of 3-8% annually rather than large jumps, as small regular adjustments maintain customer relationships better than infrequent large increases that can shock customers.
• Provide customers with 30-60 days' advance notice when increasing prices, clearly explaining the specific factors driving the increase such as rising costs or service improvements while emphasising the ongoing value they receive.
• Monitor key metrics for 3-6 months after implementing price increases, tracking customer retention rates, sales volume changes, and profit margin improvements to ensure the changes meet your goals without harming customer relationships.
• Consider alternatives to direct price increases when appropriate, such as adding fees for previously free services, removing pricing tiers, negotiating better supplier payment terms, or reducing product sizes while maintaining similar prices.

Reasons for increasing prices

When to increase prices depends on specific business triggers that threaten your profitability. You should consider raising prices when facing rising costs, expanding services, or repositioning your brand.

Common triggers include:

• Low initial pricing: New businesses often start with lower prices to attract customers, then raise prices once they've established reputation and customer base.
• Strategy changes: Suppose you've been marketing your business as a value provider, but you'd now like to rebrand to catch higher-end customers. A higher price is critical to gaining acceptance in this premium sector.
• The manufacturer issues a Recommended Retail Price (RRP) increase: While you might not always sell a product at the RRP, if the manufacturer has raised it, chances are good that the market value of the product has increased.
• Increased supply chain costs: Your supplier has raised the price of raw materials or the cost of delivering them to you. Since the pandemic, import prices have increased by 26.4%, with freight costs rising over 247%. You'll need to raise prices to maintain the same profit margin.
• General inflation: If inflation means a rise in payroll or other business costs, you'll have to increase prices to maintain your margins.
• You've added new features to your product or service in response to customer demand. Your product or service is now more valuable, and a price increase is in order.

Risk of not increasing prices

Not increasing prices creates greater financial risks than implementing strategic price adjustments. When costs rise but prices stay static, businesses face immediate threats to sustainability; for example, recent data shows construction insolvencies are 25% above their pre-pandemic average.

Key risks include:

• Shrinking profit margins: Reduced profitability forces difficult choices between cutting costs or increasing sales volume
• Unsustainable operations: If you sell your time, it is hard to work enough extra hours to make up for lower margins
• Delayed larger increases: Waiting too long often requires bigger jumps that shock customers

Gradual increases work better than large jumps. Small, regular adjustments (typically 3–8% annually) maintain customer relationships better than infrequent large increases that can damage your reputation.

Stages of making a price increase

Successful price increases follow four clear steps that help you keep customers while protecting your margins. This approach helps you grow revenue with confident, well-planned pricing.

1. Research

Market and cost research helps you see which price changes your business can sustain and your customers are likely to accept.

Essential research includes:

• Historical analysis: Review past price changes and their impact on sales and customer retention
• Profit margin calculation: Determine current margins and target levels needed for sustainability
• Competitor pricing: Analyse what similar businesses charge for comparable products or services

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Customer research can help you understand customer loyalty, resistance to price increases and the demand for your product or service. Also, check the prices your competitors charge for similar products and services.

2. Develop the strategy

Use your research and the reasons for increasing prices to develop a pricing strategy and method that makes sense for your business. Here are some possible strategies and things to consider:

• Simply raise prices without an announcement. Retailers may find that simply issuing new price tags works just fine.
• Make the increase only in specific markets or with new customers. For example, you might keep your founding customers at the old price while raising the price for newer customers.
• Offer perks, such as rewards or loyalty programs, to retain customers after the increase. For example, a massage therapist might offer an option to receive 10% off a third treatment during the same month.
• Raise the prices for everyone, but offer occasional discounts and other deals that bring the prices down to the previous level.
• Raise prices by a certain percentage every year, which may be tied in with inflation or cost of living.
• Raise prices only on certain products. Examples may be products you want to make premium products or your most popular products. A slight price increase on high-volume products can produce a significant revenue increase.
• Keep base prices the same but end discounts, especially for existing customers. Eliminating discounts effectively raises prices without formally doing so.
• Keep the base price the same, but add a surcharge. For example, for customers who want services during peak times.

3. Timing of the increase

Consider the best time to make the increase. While the best time varies with each business, you might consider raising prices:

• after you've just upgraded a product or service or won an award as consumers are more amenable to paying more for a better product or service
• when demand is high, especially if you run a service business and you are booked for 75–80% of your available time

4. Communicate the increase

Effective communication requires transparency and adequate notice to maintain customer trust. Give customers 30-60 days' notice for service businesses, or follow contractual requirements for longer-term agreements.

Key communication principles:

• Advance notice: Provide sufficient time for customers to adjust their budgets
• Clear reasoning: Explain specific factors driving the increase (cost rises, service improvements)
• Value emphasis: Highlight ongoing benefits and quality they receive

Announce the increase gently, using words such as adjustment or update. Give customers both a percentage increase and the actual amount. Communicate it with signs, through emails, and one-on-one.

Be sure to contact key customers directly before making a general announcement. If they are upset, talk through what led to your decision, as handling it poorly can be a real risk; research shows 73% of consumers say they will switch to a competitor after multiple bad experiences.

Highlight the benefits of your product or service and how it adds value. And tell them if the increase is because of increases in your costs, such as labour or supply chain costs. Also, if it's been awhile since you last increased prices, mention that in your communication.

5. Measure the results

Monitor results for 3–6 months after you put the new prices in place to check the change meets your goals without harming customer relationships.

Track these key metrics:

• Customer retention rate: Measure how many customers continue purchasing after the increase
• Sales volume changes: Monitor whether revenue gains offset any volume decreases
• Customer feedback: Collect direct input through surveys or conversations to gauge satisfaction
• Profit margin improvement: Confirm the increase delivers the intended financial benefits

Accounting software, like Xero, can help you with this analysis through up-to-date accounting reports.

Alternatives to increasing prices

Sometimes a price increase is not the best option for your product or service, so you may need to look at other methods. Here are some alternatives to a price increase:

• Add or raise fees. If you've always offered free shipping, consider charging shipping for orders below a certain amount.
• Remove pricing tiers or consolidate them to increase your revenue.
• Reduce stock held to reduce costs. If you have a feel for how much product you need, or know you can receive it quickly, consider reducing the amount you store in your warehouse.
• Negotiate better payment terms with your suppliers. This is an important strategy given that purchase costs for firms have increased by 12.9% since pre-COVID. If your business has grown and you've increased your order from your suppliers, you may also be able to negotiate a price discount, depending on your industry.
• Change product size ('shrinkflation'). If you've always packaged your cereal in 500g boxes, consider packaging it in 450g boxes for a similar price. This can attract some pushback from customers, so be prepared and explain the change clearly.

Experiment with pricing

Price testing helps you find the optimal increase amount by comparing different approaches before full implementation. Testing reduces risk and maximises revenue potential from your pricing strategy.

Effective testing methods:

• A/B pricing: Test two different price points with similar customer segments to compare conversion rates
• Bundle experiments: Offer package deals in select markets to gauge customer response to value-added pricing
• Gradual rollouts: Implement increases with new customers first, then expand to existing customers based on results

Make price increases work for your business

Well-planned price increases help you keep your business healthy and growing. Following four steps (research, strategy, communication, and measurement) helps you maintain customer relationships while reaching the margins you need.

Regular pricing reviews ensure your business stays profitable as costs change. With proper planning and clear communication, price increases become a normal part of business operations rather than stressful events.

Ready to take control of your business finances? Track your pricing impact and monitor profit margins with clear financial reporting. Try Xero for free and see how easy it is to manage your business's financial health.

FAQs on price increases

Here are answers to common questions about implementing price increases in your business.

What's a reasonable percentage for a price increase?

Many businesses can make annual price increases of 3–8% without losing many customers. Larger increases of 10–15% work best when you can clearly show extra value or major cost increases.

How often should you review your pricing?

Review pricing annually at minimum, or whenever costs increase by more than 5%. Service businesses may need quarterly reviews due to labour cost fluctuations.

What if customers refuse to pay the new prices?

Focus on communicating value and offer transition options like payment plans. Typically, 5–15% of customers may leave, but the customers who stay and pay the new prices often more than make up for this.

Should you increase prices for all customers at once?

New customers should pay new prices immediately. For existing customers, implement increases gradually or offer loyalty discounts to ease the transition while maintaining relationships.