Should You Increase Prices Due to Inflation? - Early Bird Bookkeeping

Should You Increase Prices Due to Inflation?

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A big challenge many business owners are facing in today’s economic climate is declining profit margins in the face of continued price pressures.

During the pandemic, as well as afterwards when inflation was expected to be “transitory”, many businesses resisted raising prices, choosing to accept lower profits where possible. Now that it seems pretty clear that high inflation rates are with us for the foreseeable future, businesses are being forced to consider raising prices.

But a very justifiable worry on many business owner’s minds is that they might lose customers if they raise prices or raise them too much. Let’s look at some ways you can approach those price increases in a manner that will reduce the risk of upsetting or losing your customers.


Behavioral studies have shown that customers expect a fair price for themselves and a fair profit for the seller. But when they believe the balance is unfair, that they are paying too much while the seller makes an excessive profit, they are unhappy and unlikely to continue purchasing the same product at the same price. Your job as a seller in an inflationary environment is therefore two-fold:

  1. Communicate to your current customers that your profit margin is not increasing at their expense, and your products might not even be available if you don’t raise prices and subsequently go out of business.
  2. Make sure you are earning a fair profit, and that your customers can perceive it as fair.


The good news, in a sense, is that customers are currently faced with price increases on all fronts. They see it at the pump, at the grocery store, and they hear about it on the news, so they are primed to “understand” that your business must raise prices.

A few strategies you can implement when communicating price increases to your customers are:

  • Don’t be sneaky. Let your customers know in advance that price increases are coming, and explain them beforehand. Have examples ready if possible. You don’t have to break down your profit margin details, of course, but simple data points like “Our delivery trucks drive 1200 miles a day, and it’s costing twice as much per mile this year” are things that customers can relate to and appreciate.
  • Add specific fees if possible, rather than general price increases. We ourselves have recently encountered “food cost fees” on restaurant bills and “gas price fees” on trash pickup invoices. Customers won’t like these, of course, but they shift the blame, as it were, and reinforce the idea that a “fair” price is being paid.


There are a variety of ways you can approach this, but they all boil down to the same thing – deliver an excellent product or service that provides value to the customer, even if it now costs more.

  • What are your competitors doing? Research what your competitors are doing in terms of price increases. Matching that, or even beating it if possible, means that you can communicate what your industry is doing, or that they will discover it for themselves if they go elsewhere.
  • Examine your current prices for underpricing. Many companies, when they analyze their prices, may discover that they are actually charging below the market price for certain services or products. If you can find any examples of this in your own pricing, be sure to increase those prices first, since they are effectively a “discount reduction” rather than a price increase.
  • Invest in customer service. Your employees are the direct link to your customers, so encourage them to increase customer care and interaction. Customers who feel “well taken care of” often perceive value far beyond a simple price to product calculation. And consider compensating your employees for upping their game – you might even be able to work the new expenses into your price increases.
  • Cut costs where possible. This goes without saying, perhaps, but continue to seek any cost savings that will not negatively impact the customer experience.
  • Grandfather in current customers with smaller price increases. If your sales model permits it, give current customers a “discount” on price increases, and seek to attract new customers with your “true” new prices. If you are able to provide value to those new customers, they will not have a previous bias of what prices “used to be”.
  • Give customers less, if that’s better for them. It sounds counterintuitive, but if your customers pay a fixed price for a package of services and are no longer able to afford that package at a higher price, they may be willing to take less for the same price. In that case, they still get the value they need from your business, while you maintain a similar profit margin on less product.

Nobody likes to risk losing customers due to price increases, but in the current inflationary environment you may find that you have no choice. If so, keep your customers’ perceptions of fairness in mind, up your customer communication game, and seek ways to create more “value” at higher prices.