How to manage a price increase with confidence

Published Friday 30 January 2026

Table of contents

• Reasons for increasing prices
• How to calculate price increases
• Why regular price reviews matter
• Stages of making a price increase
• Experiment with pricing
• Alternatives to increasing prices
• Common price increase mistakes to avoid
• Managing price increases with confidence
• FAQs on price increases

Key takeaways

• Calculate price increases using the formula [(New Price - Old Price) / Old Price] x 100 to understand the exact percentage impact and communicate changes clearly to customers.
• Implement small, regular price increases of 3-5% annually rather than large, infrequent jumps to maintain customer relationships and avoid sticker shock.
• Provide advance notice when announcing price increases and focus your communication on the value customers receive rather than apologising for the change.
• Monitor customer feedback, sales performance, and profitability after implementing price increases to make quick adjustments and validate your pricing decisions.

Reasons for increasing prices

Price increases are upward adjustments to your product or service costs. While customers may resist them, they’re often essential for business sustainability.

Common reasons for increasing prices include maintaining profit margins, covering rising costs, and reflecting improved value. In fact, rising energy prices were the top reason for businesses raising their prices in early 2023, followed by raw material costs and labour costs. Understanding these drivers helps you communicate changes confidently to customers.

Key drivers for price increases include:

• Profit margin improvement: Raise prices to achieve sustainable profitability after initial low-price customer acquisition
• Strategic repositioning: Increase prices to target premium market segments and enhance brand perception
• Supplier cost increases: Pass through manufacturer RRP increases or rising raw material costs
• Supply chain inflation: Offset increased delivery, labour, and operational expenses
• General inflation: Maintain margins when broader economic inflation affects business costs
• Enhanced value delivery: Reflect new features, improved service quality, or additional customer benefits. One analysis found that improvements in areas like product quality and vendor competence created a positive differentiation value of 8%, allowing for a corresponding price increase.

How to calculate price increases

To work out your percentage price increase, follow these steps:

1. Subtract the old price from the new price.
2. Divide that number by the old price.
3. Multiply the result by 100 to get the percentage increase.

Before you decide on a new price, you need to get the numbers right. Calculating the percentage increase helps you understand the impact on your revenue and communicates the change clearly to your customers.

The formula for a percentage increase is straightforward:

Percentage Increase = [(New Price - Old Price) / Old Price] x 100

For example, if you sell a coffee for £2.50 and want to increase the price to £2.80, the calculation would be:

[(£2.80 - £2.50) / £2.50] x 100 = (£0.30 / £2.50) x 100 = 12%

This tells you you’re increasing the price by 12%. Using accounting software can help you model these changes to see how they affect your overall profitability before you commit.

Why regular price reviews matter

Not increasing prices creates greater business risks than implementing them strategically.

Financial risks of avoiding price increases:

• Shrinking profit margins: Rising costs without corresponding price adjustments erode profitability. Conversely, research shows a 10% price increase can maintain profitability even if volumes decline by 14%.
• Unsustainable operations: Businesses may become unprofitable if costs exceed revenue growth
• Limited growth options: Service businesses can’t always increase volume due to time constraints

Customer relationship risks:

• Delayed large increases: Waiting too long forces bigger jumps that shock customers
• Brand damage: Sudden significant increases harm reputation and customer retention
• Lost trust: Customers prefer predictable, smaller adjustments over surprise changes

Stages of making a price increase

Successful price increases follow a structured four-stage approach that minimises customer loss while maximising profitability. This process includes research, strategy development, customer communication, and results measurement.

1. Research

Price increase research provides the data foundation for confident pricing decisions.

Essential research activities:

• Historical analysis: Review past price changes to understand customer response patterns and revenue impact
• Margin assessment:Calculate current profit margins and identify target profitability levels
• Competitive analysis: Compare your pricing against similar businesses in your market
• Customer research: Gauge customer loyalty, price sensitivity, and demand levels

Professional accountants can help calculate margins and analyse financial impact. Find a bookkeeper or accountant near you.

2. Develop the strategy

Pricing strategy development translates your research into actionable implementation plans.

Implementation approaches:

• Silent increases: Update prices without announcement, suitable for retail environments
• Segmented rollouts: Apply increases to new customers while maintaining existing customer rates
• Value-added pricing: Combine increases with loyalty programmes or additional benefits. Despite the benefits of this approach, research indicates that only a minority of companies, between 15% and 20%, base their prices primarily on customer value.
• Tiered adjustments: Raise prices but offer periodic discounts to soften impact
• Annual indexing: Implement predictable yearly increases tied to inflation or cost-of-living
• Selective increases: Target high-volume or premium products for maximum revenue impact
• Discount elimination: End promotional pricing to effectively increase standard rates
• Surcharge additions: Add fees for premium services or peak-time usage

3. Timing of the increase

Optimal timing for price increases depends on market conditions and business performance.

Strategic timing opportunities:

• After improvements: Implement increases following product upgrades, service enhancements, or award recognition
• During high demand: Raise prices when operating at 75-80% capacity for service businesses
• Market strength periods: Capitalise on strong economic conditions or industry growth
• Contract renewals: Adjust pricing during natural business cycle points

4. Communicate the increase

Customer communication requires transparency, advance notice, and clear value messaging.

Communication essentials:

• Advance notice: Provide sufficient time for customers to budget for changes
• Gentle language: Use terms like 'adjustment' or 'update' rather than 'increase'
• Clear details: Specify both percentage and pound amount changes
• Multiple channels: Communicate through signs, emails, and direct conversations

Key messaging elements:

• Value reinforcement: Highlight product benefits and service quality improvements
• Cost transparency: Explain underlying cost increases (labour, materials, supply chain). For example, Office for National Statistics (ONS) data from mid-2023 showed that higher unit labour costs contributed about two-fifths of the increase in domestic inflation.
• Historical context: Mention time elapsed since last price adjustment
• Personal outreach: Contact important customers individually before general announcements

5. Measure the results

Results measurement enables quick course corrections and validates pricing decisions.

Monitoring activities:

• Customer feedback: Track complaints, concerns, and satisfaction through surveys and direct communication
• Sales performance: Monitor revenue trends, customer retention rates, and order volumes
• Profitability analysis: Measure margin improvements and overall financial impact
• Market response: Assess competitive reactions and customer acquisition costs

Accounting software like Xero provides real-time financial reports to track these metrics and identify when adjustments are needed.

Experiment with pricing

If you have time before you raise prices, test different prices and approaches to see which works best. You could try two different prices to see which provides the most revenue.

Offering bundled pricing is another way to experiment. 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 whether the concept will work.

Alternatives to increasing prices

Price increase alternatives help maintain profitability when direct increases aren't viable due to market competition or customer sensitivity.

Alternative revenue strategies:

• Fee additions: Introduce charges for previously free services like shipping or premium support
• Pricing tier changes: Remove or consolidate pricing options to guide customers toward higher-value plans
• Inventory optimisation: Reduce storage costs by maintaining lower stock levels and faster turnover
• Supplier negotiations: Secure better payment terms or volume discounts as your business grows
• Product sizing: Implement 'shrinkflation' by reducing package sizes while maintaining prices
• Value bundling: Combine products or services to increase average transaction values

Common price increase mistakes to avoid

How you handle a price increase matters just as much as the increase itself. In this section, focus on a few practical things you can do after you announce the change to keep customers on side.

• Apologising for your prices. Be confident in the value you provide. An apology can suggest that you don't believe your product or service is worth the new price.
• Not giving enough notice. Surprising customers with a price hike can feel unfair and lead to frustration. Give them plenty of time to adjust their budgets.
• Failing to explain the value. Go beyond announcing the new price and explain what your customers receive in return. Remind customers of the benefits they receive and any improvements you've made.
• Making the increase too large. A sudden, significant price jump can cause sticker shock and drive customers away. Smaller, more regular adjustments are often easier to accept.
• Ignoring customer feedback. Listen to what your customers are saying after the announcement. Their feedback can provide valuable insights and help you manage the transition smoothly.

Managing price increases with confidence

Managing price increases with confidence requires systematic planning and clear communication, not fear.

Successful price adjustments follow a proven process: research your market position, develop a strategic approach, communicate transparently with customers, and monitor results carefully. This structured method protects customer relationships while ensuring business sustainability.

Ready to track the financial impact of your pricing decisions? Try Xero for free and get real-time insights into your business performance through automated reporting and cash flow monitoring.

FAQs on price increases

Here are answers to some common questions about increasing prices.

How much should I increase my prices by?

There's no single answer, as it depends on your industry, costs, and profit goals. A good starting point is to cover your increased costs. Many businesses opt for small, regular increases of 3–5% annually rather than large, infrequent jumps.

What should I say when announcing a price increase to customers?

Be direct, honest, and focus on the value. Explain briefly why the change is necessary, for example, due to rising costs or product improvements. Thank them for their continued business and give them plenty of notice before the new price takes effect.

How often should I review and adjust my pricing?

It's a good practice to review your pricing at least once a year. This allows you to stay aligned with your business costs, market changes, and the value you deliver. Some businesses review their pricing quarterly or whenever they experience a significant change in costs.

What if customers complain about my price increase?

Listen to their concerns with empathy and be prepared to explain the value they receive. While you may not be able to prevent every customer from leaving, being transparent and confident in your decision can help retain most of them.

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

This depends on your strategy. Some businesses reward loyalty by keeping prices lower for existing customers. However, applying the increase to everyone is often simpler and ensures all customers are contributing equally to your business's sustainability.