It happens to every business. There's been a change in your industry and as a result, the resources and services needed to produce your product cost more. Now, you have to tell your customers, who have been loyally standing by you for years, that you have to raise prices.
You're probably putting off the conversation, worried about how customers will react. It almost feels like you're letting them down. After all this time that they've dedicated themselves to your business, you're repaying the favor by increasing prices?
Have no fear. Most customers expect that the cost of their beloved products won't remain stagnant forever. However, if a competitor's prices are staying firmly put, this could potentially put you at risk for customer churn. It's essential that you handle a price increase quickly and authentically, to ensure that your customers understand the situation and are willing to stick through it.
In this post, we'll explain what a price increase justification is, then we'll review some best practices you should consider when breaking the news to your customers.
Price Increase Justification
This conversation is never easy to have with customers. After all, who wants to hear that the product your business relies on is going to cost more?
No matter how well you communicate this change, your customer service team should expect some negative reaction. If you aren't seeing anyone complain about higher prices, then they're still probably too low. This leaves it up to your discretion whether you want to increase revenue or maintain customer satisfaction.
If you're experiencing pushback from your customer base, then it's helpful to sync your sales and customer service teams. Both departments should align when it comes to how you communicate this price change. This will provide customers with consistent information as they transition conversations from sales reps to service reps.
In general, the best approach your team can take is assuring customers that the increase will help maintain product quality. Customers who are dependent on your products will be more understanding of this reasoning and will want you to maintain the high-quality that they're accustomed to.
HubSpot's Chief Customer Officer, Yamini Rangan, reflects on this approach in the quote below.
"Some price optimizations were successful and others weren't. But, the ones that we communicated well were always value-driven." - Yamini Rangan, Chief Customer Officer at HubSpot
If you're not sure how to begin the conversation, take a look at some of the best practices below before you get started.
Tips for Announcing a Price Increase to Your Customers
Contact them directly.
Let customers know well in advance.
Remind them that higher prices mean better quality.
Explain the reasoning behind the price increase.
Ensure the entire organization is aware of the price increase before announcing it to customers.
Allow customers to reach out with further questions or concerns.
1. Contact them directly.
Imagine if your Spotify Premium bill increased from $9.99 to $14.99 per month without your knowledge or consent. You would be pretty mad, right?
It's completely unfair for a customer to suddenly find out there has been a price increase in their product. If a price increase occurs, make sure you go through your list of all customers who use that product and let them know about the change. If possible, it's an added bonus to address each letter to each individual customer to further personalize the process.
2. Let customers know well in advance.
You should provide your customers with plenty of time to come to terms with the price increase. They may need to re-assess their budget or consider alternative options, so you should keep them in the loop as soon as you're made aware of the situation. Additionally, you should encourage them to make one or more orders of the product before the price increase kicks in.
3. Remind them that higher prices mean better quality.
It can be confusing to customers why a price increase would be necessary, especially if they've been purchasing the same product for months or years. This makes it vital that you stress the importance of product quality.
Typically, products increase in price to match higher operating costs, increases in hires, or increases in prices of materials. To ensure the same level of high quality, sometimes you have to raise the price.
4. Explain the reasoning behind the price increase.
To make it clear that you're raising the prices to maintain the quality of the product, you should explain what caused the price increase. For instance, as some raw materials become increasingly scarce and expensive, companies that utilize these materials are forced to increase the prices for products that use them. Laying that out to customers will prove your willingness to be transparent.
5. Ensure the entire organization is aware of the price increase before announcing it to customers.
It would be embarrassing if a frontline worker wasn't made aware of the price increase and accidentally charged a customer the original price of the product. Even if all employees were made aware of the situation, they should all be on the exact same page in terms of the cost-difference, the reasoning, and the logistics moving forward. That way, your company has a consistent voice on the matter.
6. Allow customers to reach out with further questions or concerns.
You want to be sure your customers receive all the information they require. A lack of information could cause them to churn to a competitor with lower prices. Reassure them that they can always reach out to anyone in your company — including high-level executives — with any more questions or concerns that come up regarding the price increase.
Have a price increase coming but still not sure how to say it? The tips above have been included in the following examples of price increase letters that have been sent to real customers.
It's important to let your customers know about an upcoming price increase, but telling them can sometimes be tricky to phrase.
If you're stuck, take a look at the examples below for ideas on how to convey the message to customers.
1. General Price Increase
Please be advised that [Company Name] will generally increase prices up to [Value] on all [product type], effective [Date].
[Provide any necessary logistical details.]
As always, we are committed to providing quality products and service to you and appreciate your business and continued support.
This is an example of a letter that lays out a general price increase to customers. It states the exact percentage of the price increase and which products will be experiencing the higher cost. The letter also states exactly when the price increase will come into effect and reminds customers of how long they have to order their products at the current price.
2. Increase in Cost of Materials
Dear [Customer Name],
This is a notice that there will be an increase of [Value] in our [Product Type] pricing to take effect on [Date].
Since [Date or Circumstance], [Company Name] has seen ever increasing costs for [Relevant Aspect of Business] that has effected the cost of providing service to our customers.
The increase helps us ensure our commitment to providing the very best products and services for our customers.
If you have any questions about the above changes, contact [Details].
We thank you for your support and continued business.
This letter also states the exact percentage of the price increase and when it will go into effect. It gives a specific reason for the price increase, providing transparency that many customers will understand. To make this message more impactful, considering adding the value that the price increase provides to customers.
3. Increase in Operating Costs
Dear [Customer Name],
After carefully analyzing increased materials and overhead costs, we are writing to inform you of a necessary forthcoming price increase and give you adequate notice to manage and incorporate this change accordingly.
With the exception of [Product Type], [Company Name] will be increasing prices by [Value], effective [Date]. A new [Year] price list will be issued on [Date].
[Insert breakdown of all products affected by the price increase.]
Please be assured that [Company Name] has made every effort to keep this increase to a minimum and will continue to honor current price structures up to [Date].
Like the others, this letter states the percentage of the price increase and when it will go into effect. The letter begins by stating a clear reason for the change. It's helpful to lay out the exact products that will be experiencing a larger price increase than the rest to avoid any confusion from customers.
Based on these examples, you can use the template below to create your own price increase letter to send to your customers.
This letter services to advise you that there will be an increase of [Percentage] on [Products and/or Services] to be put into effect on [Date]. This increase is due to [Reason].
[Company Name] is committed to offering you the quality you expect and deserve. We have found a way to minimize the price increase to the least possible amount while still achieving our desired goals.
All orders made before [Date] will be honored with the current price, so we highly encourage you to order soon to take advantage of this.
[Company Name] greatly appreciates your continued business and support through this time of growth and change. If you have any further questions or concerns regarding this price increase, please do not hesitate to reach out. Our team is more than happy to discuss this situation with you
Keep in mind that you'll want to adhere to the tone that you've set during the customer relationship so far while being transparent and personal every step of the way. Templates can help provide the necessary professional context for price increases and other difficult topics, but be sure to customize them for maximum impact.
Editor's note: This post was originally published in March 2019 and has been updated for comprehensiveness.
Originally published Apr 13, 2021 5:00:00 PM, updated June 15 2021