When to raise prices and how to tell customers clearly

Published Monday 30 March 2026

Table of contents

• Reasons for increasing prices
• Benefits of timely price increases
• How much to raise prices
• Stages of making a price increase
• Experiment with pricing
• Instead of increasing prices
• FAQs on raising prices

Key takeaways

• Implement gradual price increases of 3-5% annually rather than large one-time jumps, as smaller incremental changes are easier for customers to accept and help maintain stronger relationships.
• Communicate price changes clearly by giving customers 2-4 weeks' notice, using neutral language like "price adjustment," explaining your reasoning, and highlighting any product or service improvements that justify the increase.
• Research your market position before raising prices by reviewing past price changes, calculating current profit margins, assessing customer loyalty, and comparing competitor pricing to set realistic targets.
• Track key metrics after implementing price increases, including customer feedback, sales volume, revenue changes, and retention rates, as studies show over 80% of managers incorrectly predict how price changes affect sales.

Reasons for increasing prices

Price increases protect your profit margins when business costs rise. Here are the most common reasons to raise your prices:

• Improve profit margins: raise prices to reach sustainable margins after an initial low-price launch
• Brand repositioning: charge more to attract premium customers and signal higher value
• Manufacturer price updates: match recommended retail price increases to reflect current market value
• Rising supply chain costs: offset higher raw material or delivery expenses from suppliers
• Adjust for inflation: cover increased payroll, rent, or operating costs driven by inflation
• Added product value: justify higher prices when you've improved features or expanded services; for example, one company used value quantification to achieve a price premium of 50% over competitors

Benefits of timely price increases

Acting promptly on price increases helps you avoid complications and maintain customer trust. Here's why timely action matters:

• Protect your margins: price adjustments help maintain profitability as costs rise
• Sustainable workload: timely increases help services businesses maintain manageable capacity
• Smaller, manageable increases: regular adjustments are easier for customers to accept
• Customer retention: gradual adjustments support stronger customer relationships, as research shows two-thirds of customers who leave a service do so because they feel the business "doesn't treat me right"

Smaller, incremental price increases are easier for customers to accept than one large change.

How much to raise prices

The right price increase covers your rising costs while staying acceptable to customers. Most businesses raise prices by 5%–10%, though the exact amount depends on your industry, costs, and competitive position.

Here are methods to calculate your increase:

• Use the cost-based method: add up your cost increases and calculate what percentage raise covers them
• Use the margin-based method: determine what price delivers your target profit margin
• Use the competitor-based method: check what similar businesses charge and position accordingly

Pricing considerations: Keep these factors in mind when setting your new price:

• Make small incremental increases: raising prices by 3%–5% annually is easier for customers to absorb than one large jump
• Use psychological pricing: prices ending in 9 (such as $29.99) can feel lower than round numbers
• Align with value: higher increases work better when paired with visible improvements to your product or service

Use your accounting software to model different price points and see how each affects your projected margins.

Stages of making a price increase

A structured approach reduces customer pushback and protects your revenue. Successful price increases follow four stages: research, strategy, communication, and measurement.

Research

Research helps you set the right price and anticipate customer reactions. Before raising prices, gather data on:

• Review past price changes: examine how previous increases affected sales and retention
• Calculate current profit margins: determine your existing margin and the margin you need to reach
• Assess customer loyalty: determine how price-sensitive your customers are through surveys or feedback
• Compare competitor pricing: check what similar businesses charge for equivalent products or services

An accountant can help you analyse margins and set realistic targets. Find a bookkeeper or accountant near you.

Develop the strategy

Develop the strategy that fits your business model and customer base. This provides a competitive advantage, as studies show that less than 5% of companies have a dedicated department for pricing. Here are common approaches:

• Raise prices silently: update price tags without a formal announcement, which works well for retail
• Segment by customer type: keep existing customers at old rates while charging new customers more
• Add loyalty perks: offer rewards or discounts on repeat purchases to offset the increase
• Use promotional pricing: raise base prices but run occasional deals that match previous levels
• Schedule annual increases: raise prices by a set percentage each year, tied to inflation
• Target high-volume products: apply small increases to bestsellers for significant revenue gains
• End existing discounts: remove promotions to raise effective prices without changing list prices
• Add surcharges: keep base prices flat but charge extra for peak times or premium services

Time the increase

Timing affects how customers respond to your price increase. Raise prices when:

• After improving your offering: customers accept higher prices more easily after upgrades or awards
• When demand is high: services businesses should consider increases when booked at 75%–80% capacity
• When costs have visibly risen: customers understand price changes tied to widely known inflation or supply issues
• When launching new products: bundle increases with new releases to shift focus to added value

Communicate the increase

Communicate the increase clearly and early so customers can prepare. Transparency builds trust and reduces pushback.

What to say: When communicating your price increase, include these key points:

• Use neutral language like "price adjustment" or "rate update" instead of "price increase"
• State both the percentage change and the new amount in clear terms
• Explain the reason, whether rising costs, inflation, or added value
• Highlight improvements to your product or service that justify the change
• Mention how long it's been since your last increase if applicable

How to communicate: Use these channels to share your price update:

• Contact key customers directly before any public announcement
• Send emails with clear subject lines and the effective date
• Post in-store signage for retail businesses
• Update your website pricing pages in advance

How to handle objections: If customers push back, follow these steps:

• Listen to concerns without becoming defensive
• Explain the factors behind your decision calmly
• Offer alternatives if available, such as a smaller package or payment plan

Measure the results

Measure the results to confirm the increase is working and adjust if needed. This is critical, as one study found over 80% of managers incorrectly predicted the effect of price changes on sales volume. Track these indicators after your price change:

• Collect customer feedback: gather direct responses through surveys or conversations
• Monitor sales volume: track whether unit sales drop significantly after the increase
• Check revenue and profit margins: verify whether higher prices translate to improved profitability
• Watch customer retention: look for unusual churn or cancellations

Xero accounting software provides real-time reports on revenue and margins so you can spot trends quickly and respond. View up-to-date accounting reports to track your business performance.

Experiment with pricing

Experimenting with prices helps you find the right increase before a full rollout. If you have time, test different approaches:

• Test A/B pricing: offer two price points to different customer segments and compare revenue
• Try bundled pricing: package products together at a slight discount to test perceived value
• Run market-specific trials: launch new prices in one region or channel before expanding

These tests reduce risk and reveal what your customers will accept.

Instead of increasing prices

Instead of increasing prices, you can improve margins without changing your headline rates. Consider these options if a direct price increase isn't right for your business:

• Introduce or raise fees: charge for shipping on orders below a threshold or add service fees
• Consolidate pricing tiers: remove lower tiers to shift customers towards higher-value plans
• Reduce inventory costs: hold less stock if you can reorder quickly to cut storage expenses
• Negotiate supplier terms: request discounts or better payment terms as your order volume grows
• Adjust product sizing: reduce package sizes slightly while keeping prices stable, though transparency about changes helps maintain trust

Whether you raise prices or explore other strategies, track the financial impact. Xero accounting software gives you real-time visibility into your profit margins, cash flow, and revenue changes so you can make confident decisions. Get one month free and take control of your pricing strategy today.

FAQs on raising prices

Here are answers to common questions about raising prices for your business.

How much notice should I give customers before raising prices?

Give customers at least two to four weeks' notice so they can budget for the change. For subscription services or contracts, check your terms for required notice periods.

Should I raise prices for existing customers or just new ones?

Both approaches work depending on your business. Keeping existing customers at their current rate builds loyalty, while universal increases simplify your pricing and ensure fairness.

How do I respond to customer concerns about a price increase?

Listen to their concerns and explain your reasoning calmly. Customers who stay often value your product enough to accept the change, and you can focus on strengthening those relationships.

How often should I review my pricing?

Review your pricing at least once a year. Check whether your costs have risen, how competitors have adjusted their prices, and whether your margins still meet your targets.

Can Xero help me track the impact of price changes?

Yes. Xero's reporting tools show real-time revenue, profit margins, and cash flow so you can see how a price increase affects your business and adjust quickly if needed.