How to Write a Price Increase Letter (with Template)

  • Accracy
  • 26th Nov, 2023

Running a business is a balancing act. You want to keep customers happy, but you need to stay profitable. And when the economic climate is less than favorable, sometimes raising prices is simply a necessity to keep your doors open. Then you need to figure out how to tell your customers about it.

How to Write a Price Increase Letter (with Template)
Operations

How do you know when it's time to raise your prices?

There are many factors that go into determining the right pricing for your products and services. When you first set your prices, you probably considered what others were charging for similar products and services. You might have done some calculations to find out what price covered your costs and left you a reasonable net profit as well.

But now that we're in a period of inflation, the elements of that calculation have likely changed. Raw materials might be more expensive and benchmarking your prices with those of your competitors might yield very different results, while your net profit may have shrunk beyond what's sustainable.

Here are a few indicators that it's time to raise your prices:

  • You're working longer hours and not seeing an increase in profit.
  • Your customers are demanding more without paying more.
  • Your profit margins have shrunk due to higher operating expenses.
  • Your fixed costs are going up.
  • Your supplies and inventory costs have increased.
  • You want to include new features that are more expensive than current ones.
  • Your cost of labor increased when you raised salaries and wages for employees.
  • The quality of your product or service is suffering.
  • Your competitors have all raised prices.
  • You're losing money on the business.

How do you determine how much to raise your prices?

The next question is simple to ask but complicated to answer: how much do you raise your prices?

Finding the sweet spot requires balancing several competing needs. You want to raise prices as little as possible to avoid off-putting customers. But you want to raise them enough that you don't have to touch them again for at least a year, if not longer.

You also need to monitor your cost of goods sold to see how much your operating costs are increasing. Additionally, you need to sort out which of your prices you're actually raising—all of them? Or just a few?

To sort out the best strategy for raising prices, take a measured approach. These are a few ways to get started:

  • Analyze your current numbers and run some projections. If you maintain the same volume of sales but increase the price of item A versus item B, do you see the increase you are looking for?
  • What if you raise prices slightly across the board to offset increasing overhead costs? What will that do to your profits, assuming the same purchase rate? What happens if purchases go down, as you can expect some customers to defect following the change?
  • Look at your upstream numbers to see which of your costs are increasing. Is it gas? Transportation costs? Rental space for inventory? Consider transferring some of the costs of acquiring or storing items directly to the price of those items. It might be time to update your shipping policy and pricing as well.
  • Monitor what your competitors are doing. Have they already raised prices? That makes it easier to raise yours by the same percentage or amount. On the other hand, if you're the first to raise prices, you don't need to wait for others—you just get to be the trendsetter who communicates the price raise with transparency.
  • What will your customers be more comfortable with? While not a hard science, you can monitor your customer behaviors or pull a focus group together to determine what changes your customers are most willing to understand and tolerate. A good choice might be something that's easy to understand, like bumping up prices on items that are large and heavy to ship due to increased fuel and transportation costs.

Price increase letter template

While one way to go about this is to simply raise prices and hope that nobody notices, it's a far better idea to break the news to your customers politely and professionally.

Wondering how to do that? This price increase letter template can help. It's best to use this as more of a guide, as you want to make your communications as personal and unique to your business as possible. That will also help show customers that you care about them, not just your bottom line. Here's an example:

Price Increase Letter Template

 

Dear [NAME],

We are so glad to count you as a customer of [BUSINESS NAME]. Recently, we've seen our shipping and material costs increase, so we are making a small change to the price of [SERVICE/PRODUCT.] The price of [PRODUCT/SERVICE] will increase from [OLD PRICE] to [NEW PRICE], effective [DATE.]

This was a challenging decision for our team as we know it directly impacts our loyal customers. We want to be sure we can continue to provide our best, high-quality products and services to you, our customers, and this price increase will ensure that we are able to do so.

If you have questions or concerns about this change, you can contact our customer service department by phone or chat. You can also learn more about the changes on our pricing page or through our Frequently Asked Questions.

We thank you for your understanding and support.

Sincerely,

[COMPANY NAME]

What are other ways to communicate price increases with customers?

Sending a letter to customers through email is a formal and appropriate way to share a price increase announcement, but it's certainly not the only way. Here are a few additional methods.

Website notifications

It's hard to miss a pop-up notification on a website when it stops you in your tracks (or clicks). A quick, friendly message alerting customers that you've raised prices slightly to help offset higher costs or to bring them a more quality product is a good way to reach as many of your customers as possible.

Social media campaign

Your messaging on social media sites like Instagram, Facebook, and LinkedIn can be more casual than the formal letter you've sent customers, but just as effective. Expect some backlash—it is social media, after all—so be ready with calm explanations and assurances once you make the announcement.

Follow-up emails

You can also send a follow-up email to your customer base after your initial rate increase letter has gone out. Your follow-up email might be as simple as a "thank you for your continued support" or a special offer for repeat customers to help offset a bit of the price increase, at least temporarily. Showing gratitude can go a long way toward increasing customer satisfaction.

Tips for sending a price increase letter

Once you've decided how to communicate your higher prices to customers, it's time to send out the news. You get one shot to do this well, so here are a few tips to consider before you hit send.

Give your customers plenty of advance notice

Notify customers weeks or months in advance so that they have plenty of time to prepare for the increase on the current price. This is especially important if you are offering a subscription service or something they purchase on a recurring basis.

Write clearly

It can be tempting to dance around the issue of the price adjustment, but you don't want anyone to misconstrue the message. Speak clearly and use plain language so that everyone understands your prices are going up and why.

Explain the increase

Customers will be looking for the "why" of this increase. Why do prices need to go up? Be clear in your explanation—your customers will appreciate the transparency, and therefore be more likely to stay with you.

Offer customers help if they need it

Be sure to extend a helping hand to customers if they need one. A page of FAQs linked in your email might be a good start. Instructions for what customers might need to do next is helpful, as is offering them options for contacting your customer service via a phone number, chat, or email.

Tell your employees before you go public

Your employees need to be notified about your price increase before you go public. You don't want them sharing the wrong information, as that will make this process even more frustrating for your customers. You're going to get phone calls, emails, and social media posts about your price change, and employees need to know how to respond.

Be sure you've communicated the price increase to your team members, along with the talking points they'll need to help navigate conversations with customers.

Stay personable

Your price increase notice may be formal in its delivery, but your tone and messaging should remain personable and friendly (that's true for all your email marketing). While it's unadvisable to apologize for the increase, you can empathize and offer customers product options that might be a better fit for them, as well as a means to connect with a real person about any issues.

How Accracy can help

To determine the best price for your products or services, you must know your numbers. You can't do the math on price changes if you're not up to date on the day-to-day math of running your business—in other words, up to date on your books. That's where Accracy can help.

As North America's largest professional bookkeeping service for small businesses, Accracy can help you get caught up and stay up to date with your financials. As your business becomes increasingly complex, [categorizing your expenses](To determine the best price for your products or services, you must know your numbers. You can't do the math on price changes if you're not up to date on the day-to-day math of running your business—in other words, up to date on your books. That's where Accracy can help.

As North America's largest professional bookkeeping service for small businesses, Accracy can help you get caught up and stay up to date with your financials. As your business becomes increasingly complex, categorizing your expenses and tracking every possible deduction for tax filing becomes critical. In a small business, every dollar counts. We can help you count yours.

Learn more about how Accracy works.

You can't have a successful business without your customers. Your prices need to feel fair to your customers for what you provide, but also allow you to run your business successfully. Since price increases are inevitable in any business, what matters most is that you communicate your new service price clearly and effectively. That way, your customers will stick around and keep buying what you're selling.) and tracking every possible deduction for tax filing becomes critical. In a small business, every dollar counts. We can help you count yours.

You can't have a successful business without your customers. Your prices need to feel fair to your customers for what you provide, but also allow you to run your business successfully. Since price increases are inevitable in any business, what matters most is that you communicate your new service price clearly and effectively. That way, your customers will stick around and keep buying what you're selling.

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