Eventually, every service-based business needs to increase prices. Raising your prices allows you to hire more skilled labor, pay yourself and your staff bigger salaries, and work on more exciting jobs with clients you enjoy.
Unfortunately, undercharging for home services is extremely common. Even for experienced business owners who’ve been working hard for years. The good news is, increasing your prices is possible. And doing so can level-up your business and your life.
If you’re worried about customers leaving because of a price increase — don’t be. Most people understand price increases and value your services enough to pay the difference. And those who do leave will free up your schedule for higher-paying clients.
When you’re ready to increase your prices, you need a plan to do it right.
Read on to understand when to raise your prices, how to do it, and get a price increase letter template to send to your clients.
When to increase prices
Some service businesses raise their prices 2-3% every year to account for inflation. Others increase prices on customer anniversary dates, or when minimum wage goes up.
If you’re not sure when to increase your prices, here are a few signs that it’s time:
1. Your costs increase
Labor, materials, fuel, overhead, and most other business expenses will increase in price over time. This can be due to inflation, suppliers, the labor market, and more. If you don’t adjust your prices to reflect these increases, you’ll be left paying for them out of pocket.
Keep an eye on your margins each month to monitor any permanent increases so that you can make adjustments to your pricing before they become a problem.
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2. You’re in demand
It’s normal to price low when you’re just starting your service business. You might need to attract early customers or build up your confidence. But by the time you’re booking jobs regularly, you need to increase your prices to come up to market value.
Lowballing doesn’t help you, your clients, or your industry. Instead of playing it safe and pricing low (which, ironically, is the riskiest thing you can do if you want to stay in business), learn effective pricing strategies that will help you stay competitive and profitable.
3. You want to grow your business
Price increases can also be used to help you reach specific business goals, like hiring a certain number of new employees or expanding to a new area. If you are looking to grow your business, raising prices may be the best way to fund your expansion.
4. You need to filter customers
When you price low, you tend to attract customers who value savings above things like quality or workmanship. These customers can actually cost you more than they’re worth. And if they’re going to leave over a small price increase, chances are you’d have lost them to a lowballing competitor anyway.
Raising prices can help you to filter out value-focused customers so that you can target clients who are interested in bigger or longer-term jobs.
5. You want to target new competitors
As your service business grows, your competitors will change based on the types of clients you target, the services you offer, and the niches you focus on. If there’s a specific competitor that you want to aim for, raising your prices to better match theirs puts you in a more strategic position to attract their customers.
Best practices for increasing prices
“Explaining why you are charging what you’re charging gives you a leg up. And it’s not bragging — you’re explaining your value”
– Tyler Rasmussen, Pool Chasers
Once you determine that raising your prices is the right path for your business, you need to ensure that you communicate the change to your clients properly. Here are some best practices to keep in mind for increasing prices for your home service business.
1. Increase prices on a regular basis
Usually, business cost increases are predictable. For example, annual inflation in the U.S. averages out to between 1-2%. To accommodate this, you could plan to increase your prices on a regular schedule, such as every 12 or 18 months. You could also increase prices on customer anniversaries, or when regional taxes increase.
If you increase prices regularly, each increase will be incremental (2-4%) instead of having to raise prices 25% all at once. This is easier for customers to digest, and more inline with how other services (ex: Netflix) raise their prices.
2. Document the details
Changing prices inconsistently, or using different terms for different clients, can sabotage client trust.
Write down your plan and make sure every team member is following the same price increase as you:
- Will the price increase apply to existing clients or only to new clients?
- How much are you increasing prices by?
- Is it a general price increase, or only applicable to certain services?
- When will the price increase take effect?
The more information you have about your price increase, the easier it will be to communicate to staff members and clients.
3. Inform staff of price changes
Before you tell clients about a price change, you need to make sure that you communicate it to your staff first. When all of your staff members are on the same page, it ensures consistency in quotes and invoices as well as customer service inquiries from clients. From your office staff to contractors or employees, have everyone on board before notifying customers to avoid any issues in the future with inconsistent information.
4. Don’t be afraid to justify the price increase
“Explaining why you are charging what you’re charging gives you a leg up. And it’s not bragging — you’re explaining your value,” says Tyler Rasmussen of The Pool Chasers Podcast.
When raising prices, see if you can articulate your reason for doing so. For example, more demand, higher costs, or higher-quality work compared to competitors. When explaining the cost increase to clients, having a reason helps them to understand why they’ll need to start paying more. No one wants to start paying higher bills just because, so include your reasoning in a price increase letter to ensure you communicate it properly to clients.
“Explain your work in a professional way,” says Tyler. “Tell your customers, ‘Hey, this is why we charge what we charge. We do these things differently.’ If you’re a construction company, let your customers know you do a walk-through of the job site every day to pick up any excess materials, or maybe you have licensed contractors.”
5. Provide advance notice
If you have recurring clients on weekly, monthly, or seasonal contracts who will be affected by a price increase, notify them well in advance. Communication is key in price increases because it helps clients feel respected and prepared (plus, you’ll avoid angry phone calls after surprise bills).
Try to give clients between one to three months’ notice before raising prices.
Price increase letter templates
When writing a price increase letter to send to clients, there are a few things to keep in mind:
- Keep it short and to the point
- Don’t apologize
- Encourage questions or concerns
- Prepare multiple formats for different customers (email, text, and mail)
- Send it out early
- Include the amount and date of the change
Here are some price increase letter samples you can use for your own clients.
Price increase letter sample #1
Subject: [Company Name] Price Increase Notice
Hi [Customer Name],
As you know, [Company Name] is committed to providing high-quality, professional [Industry] services to our clients.
We’ve been growing a lot in the last year and in order to continue to offer you great services, we will be increasing our prices by [Percentage] starting on [Month, Day, Year]. This will ensure that we can continue to focus on the quality of our services by working with the best suppliers and materials to get the job done right, every time.
We appreciate your support and are happy to have you as a client! If you have any questions or concerns, please don’t hesitate to get in touch.
Price increase announcement letter sample #2
Subject: Service Price Increase Notice
Hi [Customer Name],
This letter is to let you know that as of [Month, Day, Year] we will be increasing our prices by [Percentage] due to [Material and Supplier Increases/Demand/New Service Packages].
[Company Name] is committed to providing you with high-quality, timely, and professional [industry] services and this price increase will help us to maintain these values as we grow and move forward.
This price increase will not affect any jobs that are currently in progress or for quotes that are confirmed before [Month, Day, Year].
If you have any questions or concerns, please reach out via [Email Address], [Phone Number], or [Website].
Thank you for your understanding!
Price increase change notice sample #3
Subject: Price Increase Announcement
Hi [Customer Name],
On [Month, Day, Year], we’ll be increasing our prices by [Percentage], which will help us to keep up with rising business costs such as [Materials/Supplies/Labor].
Currently, we provide you with the following services:
- [Service 1]
- [Service 2]
- [Service 3]
This means that as of [Month, Day, Year], your invoice will increase from [Current Pricing] to [Amount After Price Increase].
We’re dedicated to providing you with high-quality [Industry] services and look forward to working with you in the future.
If you have any questions, we’re happy to help. Get in touch by calling us at [Phone Number], sending an email to [Email Address], or visiting our website: [Web Address].
Have you successfully raised your business prices? Have a question you wish you could ask other experienced business owners?
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