How to increase prices without losing customers | Xero

Published Thursday 2 April 2026

Table of contents

• Reasons for increasing prices
• Risk of not increasing prices
• When to increase prices
• Stages of making a price increase
• Alternatives to increasing prices
• Experiment with pricing
• Use Xero to manage your pricing with confidence
• FAQs on increasing prices

Key takeaways

• Implement smaller, regular price increases rather than waiting for large jumps, as customers respond more negatively to significant price rises and incremental adjustments are easier to absorb.
• Follow a structured seven-stage process including research, strategy development, internal communication, and timing to ensure your price increase protects customer relationships while improving profitability.
• Communicate price changes transparently by giving customers advance notice, explaining the reasons behind the increase, and focusing on the value they receive rather than just the cost.
• Monitor key metrics like revenue, profit margins, sales volume, and customer retention after implementing price increases to measure success and make necessary adjustments to your pricing strategy.

Reasons for increasing prices

A price increase is a necessary step when your costs rise, your value grows, or your margins shrink. Rather than something to fear, raising prices protects your profitability and positions your business for growth. For example, a McKinsey analysis of consumer packaged goods (CPG) companies found that when price increases failed to cover rising costs, they experienced a decline of 100 to 300 basis points in gross margins.

Here are the most common reasons to increase prices:

• Profit margin improvement: You kept prices low to attract early customers, but now you need higher margins to sustain the business
• Strategy repositioning: You're moving from a value provider to a premium brand, and higher prices signal quality to new customers
• Recommended retail price (RRP) increases: The manufacturer has raised the recommended retail price, indicating the product's market value has grown
• Supply chain cost rises: Your supplier has increased raw material or delivery costs, and you need to pass these on to maintain margins
• Inflation adjustments: Rising payroll, rent, or other business costs require price increases to protect profitability
• Added value: You've improved your product or service with new features, and the higher value justifies a higher price

Risk of not increasing prices

Not raising prices can be riskier than raising them. When costs rise and prices stay flat, your margins shrink and profitability suffers.

Here's what happens when you delay a price increase:

• Shrinking margins: You'll need to cut costs or sell significantly more to stay profitable
• Limited capacity: Services businesses can't easily sell more when time is the product
• Larger eventual increases: Waiting too long forces a bigger jump that customers notice more
• Customer backlash: Significant price rises threaten your reputation and retention more than small, regular adjustments, as research shows business customers respond more strongly to price increases than to price decreases

Smaller, incremental increases are easier for customers to absorb.

When to increase prices

The right time to increase prices is when your costs have risen, your value has grown, or your margins have shrunk to unsustainable levels. Waiting too long forces larger increases that customers notice more.

Signs it's time to raise your prices:

• Rising costs: Your supplier, labour, or overhead costs have increased and margins are shrinking
• Strong demand: You're turning away work or selling out of inventory regularly
• Added value: You've improved your product, added features, or earned recognition that justifies higher pricing
• Competitor movement: Similar businesses have raised prices, shifting market expectations
• Time since last increase: It's been more than 12 to 18 months since your last adjustment
• Capacity constraints: You're operating near full capacity and can't easily scale to meet demand

If several of these apply, it's likely time to plan your increase.

Stages of making a price increase

A successful price increase follows a structured process that builds confidence, aligns your team, and protects customer relationships. Businesses that get it right move through seven stages: research, strategy development, internal champions, internal communication, timing, external communication, and measurement.

1. Research

Research gives you the data you need to set the right price and anticipate customer reactions. Before deciding on an increase, gather information from multiple sources.

Key research areas to cover:

• Past price changes: Review how previous increases affected sales, retention, and profitability
• Current margins: Know your profit margin now and what margin you need to sustain the business
• Customer sentiment: Assess loyalty levels and likely resistance to higher prices
• Competitor pricing: Check what similar businesses charge for comparable products or services
• Demand patterns: Understand how price-sensitive your customers are

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

2. Develop the strategy

Developing a strategy means choosing the pricing method that fits your business model and customer base. Use your research to select an approach that balances revenue goals with customer retention.

Common pricing strategies to consider:

• Raise prices quietly: Update price tags without a formal announcement, which works well for retail
• Segment by customer type: Keep founding customers at the old price while charging new customers more, a strategy supported by research showing that long-tenure customers are less sensitive to price increases.
• Add retention perks: Introduce loyalty programs or discounts that offset the increase for repeat buyers
• Raise then discount: Increase base prices but offer periodic deals that bring prices back down
• Schedule annual increases: Raise prices by a set percentage each year, tied to inflation or cost of living
• Target specific products: Increase prices on premium or high-volume items where small changes have big impact
• Eliminate discounts: Keep base prices flat but remove existing discounts, effectively raising what customers pay
• Add surcharges: Keep the base prices the same but charge extra for peak times or premium services

3. Develop internal champions

Internal champions are team members who support the price increase and help drive adoption across your business. Getting buy-in before you announce the change reduces resistance and ensures consistent messaging.

Steps to build internal support:

• Identify key influencers: Find team leaders in sales, customer service, and operations who can advocate for the change
• Share the rationale: Explain why the increase is necessary and how it benefits the business long term
• Address concerns early: Give champions space to raise objections so you can resolve them before the rollout
• Empower with information: Provide data on costs, margins, and competitor pricing so champions can answer questions confidently

4. Communicate internally

Internal communication prepares your team to handle customer questions and deliver consistent messaging. Staff who understand the reasons behind the increase can respond confidently and protect customer relationships.

Key steps for internal communication:

• Brief all customer-facing teams: Ensure sales, support, and account managers know the details before customers do
• Provide talking points: Give staff clear, approved responses to common customer questions and objections
• Set the timeline: Communicate the internal announcement date and the external announcement date so everyone knows what to expect
• Create escalation paths: Define who handles difficult conversations or special requests from key customers

5. Timing of the increase

Timing affects how customers perceive your price increase. The right moment reduces pushback and makes the change feel justified.

Consider raising prices when:

• You've added value: After upgrading a product, launching new features, or winning an award
• Demand is high: When you're operating near full capacity for services, or inventory is moving quickly for products
• Costs have visibly risen: When inflation or supply chain issues are in the news, customers expect price adjustments
• Annual cycles align: At the start of a new financial year, contract renewal period, or budget cycle
• Competitors have moved: After similar businesses in your market have raised their prices

6. Communicate the increase

Customer communication should be transparent, timely, and focused on value. Give customers enough notice to budget for the change, and frame the increase around what they're getting, not just what they're paying.

Communication best practices:

• Give advance notice: Let customers know early so they can plan, especially in services industries where contracts or budgets are involved
• Use softer language: Words like adjustment or update feel less alarming than price increase
• Be specific: Share the actual amount so customers know exactly what to expect, as research shows the framing of a price increase as a percentage can reduce the likelihood of a future purchase.
• Contact key customers first: Reach out directly to your most important accounts before making a general announcement
• Explain the reason: Mention rising costs, inflation, or supply chain pressures if they're driving the change
• Highlight value: Remind customers of the benefits, features, or quality they're receiving
• Note the gap: If it's been a while since your last increase, mention that to provide context

Use multiple channels: signs, emails, and one-on-one conversations all help reinforce the message.

7. Measure the results

Measuring results tells you whether the price increase is working and where you may need to adjust. Track both financial metrics and customer feedback to get the full picture.

Key metrics to monitor:

• Revenue and profit margins: Check whether the increase is improving profitability as expected
• Sales volume: Watch for significant drops that might signal customer resistance
• Customer retention: Track whether existing customers are staying or leaving after the change, which is a critical metric since a mere 5% improvement in retention can increase profits by 25% to 95%.
• Customer feedback: Listen to comments, complaints, and survey responses for early warning signs

If sales or profitability fall significantly, analyse the data and consider adjustments. Accounting software like Xero provides up-to-date accounting reports that help you track the impact of pricing changes in real time.

Alternatives to increasing prices

Alternatives to a price increase protect your margins without changing what customers pay. If a direct price increase doesn't suit your market or customer base, consider these options instead.

Ways to improve margins without raising prices:

• Add or raise fees: Charge for shipping on orders below a certain amount, or introduce service fees for extras
• Consolidate pricing tiers: Remove lower tiers to push customers toward higher-value options
• Reduce inventory costs: Hold less stock if you can reorder quickly, cutting storage and carrying costs
• Negotiate supplier terms: Use your order volume to secure better pricing or payment terms from suppliers
• Adjust product sizing: Reduce package sizes slightly while keeping prices stable, though be prepared for customer feedback

Experiment with pricing

Pricing experiments help you find the right price point before committing to a full rollout. If you have time, test different approaches to see what maximises revenue without losing customers.

Experiment types to try:

• A/B price testing: Offer two different prices to similar customer groups and compare revenue and conversion rates
• Bundled pricing: Package products or services together at a slight discount to increase perceived value
• Market segmentation: Test higher prices in one region or customer segment before expanding
• Limited-time offers: Trial a higher price with an introductory discount to gauge customer response
• Tiered pricing: Introduce premium and standard options to see where customers naturally gravitate

Use Xero to manage your pricing with confidence

Price increases affect your cash flow, profitability, and overall financial health. Tracking the impact helps you make confident decisions backed by data, not guesswork.

Xero's real-time reporting helps you:

• Monitor margin changes: See how price adjustments affect profitability as they happen
• Track customer retention: Spot trends in sales volume and repeat purchases after the increase
• Forecast cash flow: Understand how pricing changes ripple through your finances over time
• Generate reports quickly: Pull up-to-date profit and loss statements without manual work

With automated financial insights, you can adjust your pricing strategy based on what the numbers actually show. Get one month free and see how Xero supports your business growth.

FAQs on increasing prices

Here are answers to common questions about implementing price increases.

How do you word a price increase to customers?

Use clear, straightforward language that focuses on value. For example: "To continue delivering the quality you expect, we're adjusting our pricing to [new price] from [date]. Thank you for your continued support."

What if customers push back on the price increase?

Listen to their concerns, restate the value you provide, and explain the reasons behind the change. This is crucial for retention, as research shows 68% of customers leave if you're indifferent to them. For key customers, consider offering a transition period or loyalty discount to ease the adjustment.

How much should I increase my prices by?

The right amount depends on your margins, competitor pricing, and how long it's been since your last increase. Many businesses increase prices by a small percentage at a time.

Should I grandfather existing customers at the old price?

It depends on your business model. Grandfathering builds loyalty but creates pricing complexity over time. Consider offering a transition period instead, where existing customers get a few months at the old rate before moving to the new price.

How long should I give customers notice before a price increase?

Give at least 30 days' notice for most businesses. For contract-based or subscription services, 60 to 90 days is more appropriate to allow customers time to budget and adjust.