How to increase your prices without losing customers for your small business

Published Friday 31 October 2025

Raising prices can boost profitability and business growth. Learn strategic approaches to increase your rates.

Table of contents

• Reasons for increasing prices
• When to increase prices
• Risk of not increasing prices
• How much to increase prices
• Steps to increase prices successfully
• Customer retention strategies during price increases
• Experiment with pricing
• Alternatives to increasing prices
• Track your pricing success with the right tools
• FAQs on increasing prices

Key takeaways

• Implement regular price reviews at least annually and make smaller, incremental increases of 3-5% rather than large sudden jumps to maintain customer acceptance and avoid margin erosion.

• Research your financial position and market conditions thoroughly before raising prices by calculating current profit margins, analyzing competitor pricing, and assessing customer price sensitivity to make data-driven decisions.

• Communicate price increases 30-60 days in advance using gentle language like "pricing adjustment," explain the reasoning behind the change, and highlight the ongoing value customers receive to build trust and reduce negative reactions.

• Monitor key metrics closely after implementing price increases by tracking sales, profitability, and customer feedback to identify any needed adjustments and measure the success of your pricing strategy.

Reasons for increasing prices

Many customers and businesses hesitate when they hear "price increase." As a business owner, you can approach this confidently when it supports your goals. Common reasons for price increases include cost pressures, strategic changes, and market conditions that affect your profitability:

• Rising operational costs: Higher supply chain expenses, labor costs, or general inflation that reduce your profit margins
• Strategic repositioning: Shifting from a value provider to a premium brand to match market expectations
• Product improvements: New features or services that increase the value you deliver to customers
• Market changes: Manufacturer price increases or competitor pricing shifts that affect your position

When to increase prices

Timing your price increase is just as important as the increase itself. Getting it right can help you keep your customers on board. Every business is different. There are a few key moments when a price adjustment makes the most sense.

Consider raising your prices when:

• You've recently added new features or improved your service
• Demand for your product or service is consistently high
• Your operating costs, like supplies or rent, have gone up
• You've won an award or received significant positive recognition
• It's been more than a year since your last price adjustment

Risk of not increasing prices

Delaying price increases creates bigger risks than implementing them strategically. Here's why waiting hurts your business:

Shrinking profit margins force you to cut costs or dramatically increase sales volume. For service businesses, selling more isn't always possible since your time is limited.

Regular, smaller increases are easier for customers to accept. Making adjustments consistently helps you avoid the need for larger changes later.

Competitive disadvantage develops when your margins can't support quality improvements or market changes that competitors can afford.

How much to increase prices

Deciding how much to raise your prices takes careful consideration. You need to cover your costs and improve profitability without losing customers. Start by analyzing your numbers.

First, calculate your new break-even point based on increased costs. Then, look at your profit margin goals. A small increase of 3–5 percent is often easier for customers to accept than a large jump. Research what your competitors charge to make sure your new prices are still competitive.

Steps to increase prices successfully

Successful price increases follow a four-step process that helps you keep customers and improve profitability:

1. Research

Research provides the data foundation for confident pricing decisions. This stage helps you understand your financial position and market conditions.

Start by reviewing your current finances:

• Calculate your existing profit margins
• Set your target profit margins
• Review past price changes and their impact on sales

Market research reveals customer and competitor insights:

• Measure customer loyalty and price sensitivity
• Compare competitor pricing for similar offerings
• Assess overall market demand for your product or service

2. Develop the strategy

Use your research to choose a pricing strategy that fits your business. Here are some options to consider:

• Raise prices without an announcement
• Increase prices only in specific markets or for new customers
• Offer perks, such as rewards or loyalty programs, to retain customers
• Raise prices for everyone, but offer occasional discounts to offset the increase
• Increase prices by a set percentage each year
• Raise prices only on certain products
• End discounts, especially for existing customers
• Add a surcharge for premium services or peak times

3. Communicate the increase

When you communicate price changes clearly, you build trust and reduce negative reactions.

Advance notice strategy:

• Provide 30–60 days notice for most customers
• Contact key accounts personally before general announcements
• Use multiple channels such as email, phone calls, and written notices

Message framework:

• Use gentle language like “pricing adjustment” or “rate update”
• Include both percentage and dollar amount changes
• Explain the reason for the change, such as cost increases, service improvements, or market conditions
• Highlight ongoing value and benefits customers receive
• Mention timeline since your last increase if it's been several years

4. Measure the results

Measure the results so you can adjust if needed. Listen to customer feedback and respond appropriately. Consider surveying customers. Watch your numbers closely. If you see sales or profitability drop, analyze the situation and make changes. Accounting software, like Xero, can help you with this analysis through up-to-date accounting reports.

Customer retention strategies during price increases

Your existing customers are the foundation of your business. Take extra steps to keep them loyal during a price change.

Here are a few strategies to consider:

• Offer a loyalty discount for long-term customers
• Provide early notice and explain the reasons for the increase
• Keep existing customers at the old price for a limited time
• Bundle products or services to provide extra value

Experiment with pricing

If you have time before raising prices, experiment to find the right price and strategy. Try two different prices to see which brings in more revenue. Offering bundled pricing is another way to test your approach.

For example, a mobile phone company might offer a phone, case, and screen protectors in a bundle at a discount in one market to see if it works.

Alternatives to increasing prices

Sometimes a price increase is not the best option for your product or service. Consider these alternatives:

• Add or raise fees for certain services
• Remove or consolidate pricing tiers to increase revenue
• Reduce inventory to lower costs
• Negotiate better payment terms with suppliers
• Change product size to manage costs

Track your pricing success with the right tools

A price increase isn't a one-time event – it's part of your ongoing business strategy. Keeping a close eye on your sales, profitability, and customer feedback after the change is crucial. With real-time financial insights, you can confidently manage your business growth and make adjustments as needed.

You can track your finances easily with Xero. See how your new pricing affects your bottom line and make smarter decisions for your business. Get one month free.

FAQs on increasing prices

Here are common questions answers about increasing prices for small businesses.

How much should I increase my prices?

A good starting point is a 3-5% increase to cover inflation and rising costs. Analyze your profit margins, competitor pricing, and the value you provide to determine the right amount for your business. It's often better to make smaller, regular increases than a single large one.

What are the main pricing strategies for small businesses?

Common strategies include cost-plus pricing (adding a markup to your costs), value-based pricing (based on the perceived value to the customer), and competitive pricing (setting prices based on what competitors charge). Many businesses use a mix of these approaches.

How do you politely raise your prices?

Communicate the change clearly and in advance. Explain the reason for the increase, such as improved features or rising costs. Thank your customers for their loyalty and focus on the continued value you provide. A personal email or letter is often more effective than a generic notice.

What if customers refuse the price increase?

Listen to their concerns and be prepared to explain the value your product or service offers. For key customers, you might consider a temporary discount or a phased increase. However, be confident in your pricing and understand that you may lose a small number of price-sensitive customers.

How often should I review my prices?

It's a good practice to review your pricing at least once a year. This allows you to account for inflation, changes in your costs, and shifts in the market. Regular reviews prevent the need for large, sudden price hikes that can surprise customers.