How to put your prices up the intelligent way. Inflation is up, and all costs are up, labor’s up, raw materials shipping, everything is going up, and how you manage this as a business is incredibly important. To put some context around this, if your gross margin is 40 and your direct costs go up by 10, you need to sell 18 more volumes to cover off the loss in gross profit.

So if you have a situation like that in your business and you ignore it, and you aren’t able to actually get the volume up to cover off that drop, then you are going to feel a squeeze on profit and obviously a squeeze on cash. So how do you put your prices up?

Step one just takes some time to understand what your reality is, look at all of your costs, and really get to grips with what increases you are currently experiencing and what increases you are likely to experience. That way, you’ve got a proper starting line.

The next thing for you to do is to look at the price sensitivity of your various products and services and of the price sensitivity of the various customer categories that you work with. You have different levels of price sensitivity in your business. There might be some products and services that are very, very price sensitive, so if you put the price up, then that’s going to drop volume immediately. Where you have those products or services where there’s high price elasticity, then those are the areas where you can be a bit more aggressive with your price increases, and it’s the same thing with customers. What you want to do is look at your products and services and grade them and what that will give you is a bit of context now to make some decisions.

Step number three is to base your increases now on what the costs have gone up by but also the varying degrees of price elasticity for your various products and services and for your customers and come up with something that’s going to work for you and your business.

Then the next step after this is not just to roll out those price increases that you want to dip your toe in the water, so try and roll out a little test campaign. Increase prices a little bit and see what happens. Does it have an impact on sales? Does the conversion rate drop? Are you getting feedback from customers that are really pushing back on your pricing? By doing this little test, it’ll give you an understanding of whether your price increase is actually going to come off the way that you want it to. If the tests come off well, that’s the time then to roll out, and there you go. That’s the intelligent way of doing a price increase.

Don’t worry about this blanket increase of 10 12. Whatever it is, you want to look at each situation with the price sensitivity of the customer and the product in mind and an understanding of what your costs are and what they’re likely to be.

Remember, don’t box yourself in. If you know that your costs are going to go up, you might as well try and compensate for that now so that you’re not having to go back to your customers a few weeks and months later and ask for additional increases.