When to increase prices and keep your customers onside

Published Friday 6 March 2026

Table of contents

• Reasons for increasing prices
• Risk of not increasing prices
• How much to increase prices
• Stages of making a price increase
• Experiment with pricing
• Alternatives to increasing prices
• Successfully managing price increases
• FAQs on increasing prices

Key takeaways

• Research your costs, margins, and competitor pricing before making any price changes to ensure your increase is data-driven and competitive.
• Communicate price increases transparently by giving customers advance notice, explaining the reasons behind the change, and highlighting the value they receive from your product or service.
• Implement regular small price increases of 2-5% annually rather than waiting for large jumps, as customers find gradual adjustments easier to accept than sudden significant changes.
• Monitor key metrics like customer feedback, sales volume, and profitability after implementing price increases to measure success and make adjustments if needed.

Reasons for increasing prices

A price increase is when you raise the cost of your products or services to maintain profitability. It's a normal part of running a business, and there are several valid reasons to do it.

Common reasons for increasing prices include:

• Profit margin improvement: your business has matured past the initial low-price phase and now needs healthier margins to sustain growth. This is a common scenario, as research from McKinsey & Company found that 80–90% of all poorly chosen prices are too low.
• Strategy repositioning: you're shifting from a value provider to a premium brand, which requires pricing that matches customer expectations
• RRP adjustments: the manufacturer has increased the recommended retail price, signalling higher market value
• Supply chain cost increases: your suppliers have raised raw material or delivery costs, eating into your margins
• Inflation pressures: rising payroll, rent, or other business costs require price adjustments to maintain profitability. To put this into perspective, New Zealand's overall basket of goods and services (the Consumer Price Index, or CPI) has increased about 82% since the year 2000.
• Added value: you've improved your product or service with new features that justify a higher price

Risk of not increasing prices

Not raising prices can be riskier than raising them. If your costs rise and prices stay flat, your profit margins shrink. Focusing on pricing (monetisation) is a powerful lever for growth; one study found it's four times more efficient than customer acquisition for improving growth.

When margins shrink, you're forced to either cut costs or sell significantly more. For services businesses, selling more isn't always possible since your product is your time.

Waiting too long creates bigger problems. Delaying a price increase often means making a larger jump later, which can damage your reputation and customer relationships. Smaller, regular increases are easier for customers to accept.

How much to increase prices

The right price increase depends on your costs, margins, competition, and market conditions. Most businesses increase prices by 2–10%, but your specific situation determines the ideal amount.

Consider these factors when calculating your increase:

• Cost recovery: calculate how much your costs have risen and the minimum increase needed to maintain current margins
• Target margin: work backward from your desired profit margin to determine the price point you need
• Competitor positioning: research what similar businesses charge to ensure your pricing remains competitive
• Inflation adjustment: annual increases of 2–5% can align with standard inflation rates. In New Zealand, the government has set an official inflation target of 1–3% over the medium term.
• Value delivered: if you've added features or improved quality, you may justify a larger increase

Different calculation methods suit different businesses:

• Cost-plus pricing: add a percentage markup to your increased costs
• Value-based pricing: price based on the benefit customers receive, not just your costs
• Competitive pricing: position slightly above, below, or matching competitors
• Margin-based pricing: set prices to achieve a specific profit margin

An accountant can help you run these calculations and determine the right increase for your business.

Stages of making a price increase

Successfully increasing prices requires five stages: research, strategy, timing, communication, and measurement. Here's how to work through each one.

1. Research

Research helps you make informed pricing decisions based on data rather than guesswork. Focus on three key areas:

• Historical performance: review past price changes to understand how they affected sales and customer retention
• Margin analysis: know your current profit margin and calculate the margin you need to stay profitable (an accountant can help with this)
• Market intelligence: research competitor pricing and gauge customer loyalty and price sensitivity

Find a bookkeeper or accountant near you at Xero's advisor directory.

2. Develop the strategy

Use your research to develop a pricing strategy that fits your business. Consider these approaches:

• Raise prices quietly: update price tags without a formal announcement, which works well for retail.
• Segment your increases: keep founding customers at the old price while charging new customers more.
• Add loyalty perks: offset the increase with rewards programmes or discounts for repeat customers.
• Offer strategic discounts: raise prices for everyone but provide occasional deals that match previous pricing.
• 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 the same but stop offering discounts, which effectively raises what customers pay.
• Add surcharges: maintain base prices but charge extra for peak times or premium services.

3. Time the increase

The best time to increase prices depends on your business, but certain moments make the change easier for customers to accept:

• After adding value: raise prices following a product upgrade, service improvement, or award that demonstrates increased worth.
• During high demand: if you're a services business running at 75–80% capacity, demand supports a price increase.

4. Communicate the increase

Being transparent builds trust when you increase prices. Give customers enough notice to budget for the change, and communicate through multiple channels.

When announcing the increase:

• Use softer language: words like "adjustment" or "update" feel less alarming than "price increase"
• Be specific: share both the percentage and the actual dollar amount
• Prioritise key customers: contact your most important clients directly before making a general announcement
• Explain why: mention rising costs, added value, or how long it's been since your last increase
• Highlight benefits: remind customers of the value they receive from your product or service

If customers push back, listen to their concerns and explain the reasoning behind your decision.

5. Measure the results

Measure results to know if increasing your prices is working. Track these key indicators:

• Customer feedback: listen for complaints and consider surveying customers about the change
• Sales volume: watch for significant drops that might signal price resistance
• Profitability: confirm your margins have improved as expected

If sales or profits fall unexpectedly, analyse the data and consider adjusting. Accounting software like Xero provides real-time financial reports to help you track the impact.

Experiment with pricing

Testing different prices reduces risk before you commit to fully increasing them. Try these approaches:

• A/B pricing: test two different price points in separate markets or customer segments to see which generates more revenue.
• Bundle testing: offer products or services as a package at a slight discount to gauge customer response.

For example, a mobile phone retailer might test a phone, case, and screen protector bundle in one region before rolling it out nationally.

Alternatives to increasing prices

If a direct price increase won't work, you can protect your margins through other methods:

• Introduce or raise fees: charge for shipping on orders below a certain threshold, or add service fees.
• Simplify pricing tiers: consolidate plans to reduce complexity and increase average revenue.
• Reduce inventory costs: hold less stock if you can reorder quickly, lowering storage expenses.
• Negotiate with suppliers: use your order volume to secure better pricing or payment terms.
• Adjust product sizing: reduce package sizes while maintaining price (known as "shrinkflation"), though this can draw customer criticism.

Successfully managing price increases

Price increases can be straightforward when you approach them strategically. Research your costs and market, choose the right strategy, communicate transparently, and measure results. With this approach, you can maintain profitability without damaging customer relationships.

Xero's accounting software helps you track margins, monitor sales trends, and measure the impact of pricing changes with real-time financial reports. Get one month free.

FAQs on increasing prices

Common questions about raising prices for your business.

What is a price increase?

A price increase is when you raise the cost of your products or services. Businesses typically do this to maintain profit margins when costs rise or to better reflect the value they provide.

How do you tell customers about a price increase?

Give customers advance notice through email, posted signs, or direct conversation. Be transparent about why you're increasing prices, specify the new amount and effective date, and focus on the value you provide.

What's a reasonable amount to increase prices?

Most price increases range from 2–10%, depending on your industry, cost changes, and market conditions. Annual increases of 2–5% often align with inflation, while larger increases may be justified by significant cost jumps or added value.

When should you not increase prices?

Avoid price increases during slow business periods, immediately after a previous increase, or when you're experiencing service or quality issues. Reconsider if you're already priced significantly higher than competitors.

How often should you raise prices?

Many businesses increase prices annually, which helps customers anticipate adjustments. Regular small increases are typically better received than infrequent large jumps.