Price increase guide: how and when to raise prices

Published Monday 30 March 2026

Table of contents

• Reasons for increasing prices
• Risk of not increasing prices
• When to raise your prices
• How to increase prices: a step-by-step guide
• Alternatives to increasing prices
• Experiment with pricing
• Track your pricing decisions with Xero
• FAQs on price increases

Key takeaways

• Implement price increases gradually and strategically by giving customers at least 30 days' advance notice, explaining the specific reason for the change, and highlighting the value they receive to maintain customer satisfaction.
• Choose optimal timing for price adjustments by aligning increases with natural renewal points, product improvements, or periods of high demand rather than implementing changes arbitrarily.
• Monitor key performance indicators after any price increase, including sales volume, profit margins, customer retention rates, and feedback to determine whether your pricing strategy is working effectively.
• Consider alternatives to direct price increases such as adding service fees, adjusting product sizes, or negotiating better supplier terms to improve margins without risking customer loss.

Reasons for increasing prices

Raising prices is a normal part of running a profitable business. Understanding why you need to increase prices helps you communicate the change confidently to customers.

Here are the most common reasons for increasing prices:

• Improved profit margins: keeping prices low to attract early customers means you now need higher margins to sustain the business
• Strategy repositioning: moving from a value brand to a premium offering that commands higher prices
• Manufacturer price increases: a rise in the recommended retail price (RRP), which may indicate higher costs or a repositioning strategy
• Rising supply chain costs: increased raw material or delivery costs from your supplier
• General inflation: rising payroll, rent, or other operating costs. For some accounting purposes, accountants consider an environment significantly inflationary when cumulative inflation over three years exceeds 26%.
• Added features or value: improvements to your product or service based on customer demand

Risk of not increasing prices

Raising prices at the right time protects your business better than delaying. Here are the key risks of delaying:

• Shrinking margins: rising costs eating into your profits, forcing you to cut expenses or sell more
• Capacity limits: the inability of services businesses to easily increase volume since your time is the product
• Larger future increases: a bigger jump later if you wait too long, which customers may find harder to accept
• Brand damage: potential harm to your reputation from a sudden large increase, which can drive customers away

Consider your customer base and competitive context when planning the size and frequency of increases.

When to raise your prices

Timing can determine whether your price increase goes smoothly and maintains customer satisfaction. It may help to consider whether there's a more favourable moment to introduce a change, depending on your market and customer relationships.

• After product improvements: upgrading products or adding features may help justify a higher price to some customers, though willingness to pay varies by market
• Following recognition or awards: positive publicity reinforces your value and may support higher prices
• During high demand: for service businesses, consistently high utilisation may indicate capacity constraints and justify reviewing your prices; the right threshold varies by industry and scheduling model
• At natural renewal points: annual contracts, subscription renewals, or new financial years are logical moments for adjustments
• When costs have risen significantly: customers understand that supplier or inflation-driven increases get passed on
• If you haven't raised prices in over a year: consider whether it's time for an adjustment

How to increase prices: a step-by-step guide

Successfully raising prices requires careful planning and clear communication. Follow these four steps to increase prices without losing customers.

1. Research your pricing decision

Pricing research gives you the data to set the right price and anticipate customer reactions. Before you decide on an increase:

• Review past price changes to see how they affected sales and customer retention
• Calculate your current profit margin and the margin you need to stay profitable
• Survey customers to gauge loyalty and sensitivity to price changes
• Check competitor pricing for similar products or services

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

2. Develop your pricing strategy

A pricing strategy determines how, when, and for whom you'll raise prices. Choose an approach that fits your business model and customer base:

• Raise prices quietly: update price tags without a formal announcement, which works well for retail
• Target specific segments: increase prices for new customers while keeping loyal customers at the old rate
• Add loyalty perks: offer rewards or discounts on future purchases to offset the increase
• Use periodic discounts: raise the base price but run occasional promotions at the old price
• Schedule annual increases: raise prices by a set percentage each year, tied to inflation
• Increase selectively: raise prices only on premium or high-volume products for maximum impact
• Eliminate discounts: keep base prices the same but stop offering markdowns
• Add surcharges: charge extra for peak times or premium services instead of raising the base price

3. Communicate the price increase

Communicating a price increase clearly and early helps customers accept the change. Some industries or customer contracts may require advance notice, depending on your jurisdiction, so check what applies to your business. Follow these best practices:

• Give advance notice: let customers know at least 30 days before the new price takes effect
• Use neutral language: say "price adjustment" or "pricing update" rather than "price hike"
• Be specific: share both the percentage increase and the new amount where it's helpful and clear for your customers
• Explain the reason: mention rising costs, added features, or improved service quality
• Highlight value: remind customers what they get for the price
• Reach key customers first: contact your most important clients directly before a general announcement
• Offer to discuss: invite questions and be ready to explain your decision

Here's a simple email template you can adapt:

Subject: Update to our pricing

Hi [Customer Name],

Starting [Date], we're adjusting our prices for [Product/Service]. The new price will be [New Price], an increase of [Percentage or Amount].

This change helps us continue delivering [specific value] while covering rising costs for [specific reason].

We appreciate your business and are happy to answer any questions.

Thank you for your continued support.

[Your Name/Business Name]

4. Measure the results

Measuring results shows whether your price increase is working or needs adjustment. Track these key indicators:

• Monitor sales volume: watch for significant drops in orders or bookings after the increase
• Check profit margins: confirm that higher prices are improving your bottom line
• Collect customer feedback: survey customers or note complaints to gauge reactions
• Review retention rates: track whether customers are staying or leaving after the change
• Analyse reports regularly: use accounting software like Xero to generate up-to-date profit and loss reports

Review your pricing strategy regularly and adjust as needed to maintain sales and profitability.

Alternatives to increasing prices

Alternatives to a price increase can improve margins when you want to explore other options first. Consider these options:

• Add or raise fees: charge for shipping on smaller orders or introduce service fees
• Consolidate pricing tiers: review whether your current tiers are helping or hurting revenue; simplifying them may help in some cases but should be tested
• Optimise inventory costs: adjusting stock levels may lower holding costs, but balance that against availability, lead times, and service levels
• Negotiate with suppliers: if your purchase volume has increased, you may have more leverage to discuss payment terms or pricing with suppliers, though outcomes vary by supplier and industry
• Adjust product size: offer slightly smaller quantities at the same price, being transparent with customers about the change

Experiment with pricing

Pricing experimentation helps you find the right price before committing to a full rollout. If you have time, test different approaches:

• Split test prices: offer two different prices to separate customer groups and compare revenue, profit, and customer response
• Try bundled pricing: package products together at a slight discount to increase average order value
• Test in one market first: roll out the new price in a single location or segment before expanding
• Offer limited-time pricing: introduce the higher price as a trial and measure customer response

Track your pricing decisions with Xero

Raising prices is essential to running a profitable business, but the work doesn't stop once you announce the change. You need to track results to see how the increase affects revenue, margins, and customer retention.

Xero's accounting software gives you an up-to-date view of your finances. With current reports and dashboards, you can monitor the impact of your price increase and adjust your strategy as needed.

Ready to take control of your business finances? Get one month free and see how Xero simplifies pricing decisions.

FAQs on price increases

Here are answers to common questions about raising prices.

How much should I increase my prices?

The right amount depends on your costs, competitors, and customer expectations. Tie your increase to specific factors like inflation or added value to justify the change, and consider testing smaller increases first to gauge customer response.

How do you write a price increase notice to customers?

Keep it short and direct: state the new price, the effective date, and the reason for the change. Highlight the value customers receive and invite questions.

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

Both approaches work. Raising prices only for new customers rewards loyalty, while a universal increase keeps pricing simple. Consider grandfathering long-term customers or phasing in increases over time.

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

Listen to their concerns, explain your reasoning, and reinforce the value you provide. If needed, offer alternatives like a smaller package or a loyalty discount to retain the relationship.

How often should I review and adjust my prices?

Review prices at least once a year, or sooner if costs change significantly. This is especially important in high-inflation environments, as research suggests an annual inflation rate of around 8% often requires adjustment and may signal more volatility ahead. The right approach depends on your market and customer base.