You already know you need to raise your prices. Your costs have gone up, wages have gone up, and the rate you set three years ago was set for a different business. But how do you raise your prices without losing customers?
Here’s how we’d tell you to handle it: work out how many customers you could lose and still make the same profit, talk to your best customers before anything goes in writing, then give everyone at least 30 days’ notice.
Let’s go through each step properly, including what to say when the phone rings and what to do in the weeks after.
How many customers can I lose if I raise my prices?
Before you write a single word to a customer, work out how much room you have. This sum changes the whole conversation, because it turns a vague fear into a specific number you can manage.
Customers you can afford to lose = your price rise ÷ (your gross margin + your price rise)
Your gross margin is what’s left from each sale after the direct cost of delivering it: labour on the job, materials, subcontractors, the things that only happen because that customer exists. It doesn’t include rent, insurance or admin salaries.
To find yours, take last year’s revenue, subtract your direct costs, then divide by revenue. Both figures are on your profit and loss statement. For example, if you made $1.2 million in revenue and your direct costs were $600,000, your gross margin is 50%.
Now plug it in. With a 50% margin and a 10% price rise, the sum is 10 ÷ (50 + 10) = 16.7%. You could lose one customer in six and still make the same profit.
Here’s the full picture:
| Your gross margin | 5% price rise | 10% price rise | 15% price rise | 20% price rise |
|---|---|---|---|---|
| 30% | 14% | 25% | 33% | 40% |
| 40% | 11% | 20% | 27% | 33% |
| 50% | 9% | 17% | 23% | 29% |
| 60% | 8% | 14% | 20% | 25% |
| 70% | 7% | 13% | 18% | 22% |
A worked example
Say you have 200 customers paying $500 a month. That’s $100,000 a month, or $1.2 million a year. Each customer costs $250 a month to look after, so your gross profit is $50,000 a month (a 50% margin).
You raise prices by 10%, to $550. Thirty-two customers leave.
You now have 168 customers paying $550, and each still costs $250 to look after. That’s $300 profit per customer, or $50,400 a month. You’re $400 a month ahead, with thirty-two fewer customers to look after and time to fill with work at the new rate.
One catch: this only works if your costs actually drop when a customer leaves. If your team is on salary, that $250 doesn’t disappear on its own. You get it back by trimming hours or filling the time with new work at the new price. More on that below.
Run your own numbers before you do anything else.
Not every customer is worth the same
The sum above assumes the customers who leave are average ones. They rarely are.
The customers most likely to leave over a price rise are often the ones who haggled hardest to get in, pay slowest, need the most hand-holding and refer the least. They usually cost more than average to look after, so losing them lifts your profit by more than the table shows.
Find your bottom 10% before you send anything. Pull up your customer list and flag anyone who regularly pays late, has had a discount you’d never offer today, or takes far more of your team’s time than their fee covers. If those are the ones who go, the price rise has done two jobs at once.
Will customers leave if I raise my prices?
Usually fewer than you’d fear, because price is only one part of the decision. For an existing customer, it sits alongside the hassle of switching, the relationship, familiarity and risk.
Think about what leaving asks of them. They have to find alternatives, compare them properly, explain everything you already know to someone new, learn a new system, and take the chance that the new supplier is worse. For a 10% saving on a $500 monthly bill, that’s a lot of effort to save $50.
Your customers make this choice all the time in their own lives. They pay more for the tradie who turns up, the supplier who answers the phone, the one who spotted a problem before it cost them money. They chose you for reasons that go well beyond price, and those are the reasons they stay.
What really drives people away is poor communication.
How do I raise my prices? A step-by-step plan
The plan, email and phone script below are written for businesses that bill regular customers, such as a monthly service or retainer. If you run a shop, quote for jobs, sell wholesale or re-sign clients each year, the maths above still applies. Skip to “How to raise prices if your business works differently” further down.
Give yourself about two months from start to finish. Rushing is what creates the drama you’re dreading.
Week 1: Do the maths. Work out your gross margin and how many customers you can afford to lose. To set the new price, start with how much your costs have risen since your last increase, then use the table to check how much room that gives you. Pick the date the new price starts, at least 30 days after your notice goes out in Week 4.
Avoid the week before Christmas or a big deadline week in your customers’ industry.
Week 2: Sort your customers. Put them in three groups.
Group A: your best, highest-value, longest-standing clients.
Group B: everyone else.
Group C: the handful you’d be relieved to lose.
This decides who gets a phone call and who gets an email.
Week 3: Call Group A first, before anything goes in writing. Your best customer finding out by email that their price is going up could damage a good relationship, and you want to keep these people feeling the love. Ten to fifteen calls at ten minutes each is two to three hours of your week, and it’s the best-spent time in the whole process.
Week 4: Email everyone, including Group A, who already know. The email is the formal record. The call was the courtesy. New customers can start on the new price from today.
Weeks 4 and 5: Handle replies. Expect most of them in the first 72 hours, then that’s usually it.
Week 8 onwards: The new price starts for existing customers on the date you set.
How much notice should I give for a price increase?
At least 30 days, and more if your customers budget quarterly. Longer notice costs you nothing and removes the main reason people get annoyed.
If your customers sign fixed-term or standard-form contracts, check your contract for a clause about changing prices before you send anything. Australia’s unfair contract terms rules cover small business contracts, and a clause that lets you change prices whenever you like could be a problem.
If you’re unsure, ask a commercial lawyer to look over the clause before you send anything.
Price increase letter to customers: email template
Copy this, change the details, and keep it short. A long email reads like an apology.
Subject: A change to our pricing from [date]
Hi [Name],
I’m writing to let you know our prices are increasing from [date].
Your [service/plan] will move from $[current] to $[new] per [month/job], excluding GST. This is the first increase we’ve made since [date of last increase].
The reason is simple. Our wages, insurance and materials costs have all gone up over the past [period], and we’ve absorbed them for as long as we sensibly can. We’d rather adjust our pricing than quietly do less for you.
A few things worth knowing:
Everything currently included stays included.
[Any real improvement you’ve made or are making. Only include this if it’s actually happening.]
Work already quoted at the old rate will stay at the old rate.
You’ll see the new price on your invoice dated [date]. There’s nothing you need to do.
If you’d like to talk it through, reply here or call me on [number].
Thanks for your business. We really value it.
[Name]
Why the email is written this way
There’s no apology. “Sorry to have to do this” invites the reader to agree it shouldn’t be happening. State the change and the reason, clearly and once.
It gives a reason, not a defence. A sentence or two on rising costs is enough. A long explanation signals that you’re not sure you deserve it.
It honours existing quotes. This costs you very little and removes the fairest complaint you’d otherwise get.
It shows the dollar amount. “$500 to $545” is just a fact. “A 9% increase” sends people looking for a calculator.
It invites a conversation without begging for one.
What to say when you call a customer about a price increase
Use this for Group A, and for anyone who rings upset. Keep your tone calm and unhurried. How you sound matters more than the exact words.
Opening: “Hi [Name], it’s [your name]. I’ve got a quick update on our pricing, and I wanted to tell you myself before you see the email.”
The news: “We’re putting our prices up from [date]. For you, that means going from $[current] a month to $[new].”
The reason: “Our costs have gone up across the board, wages especially. We’d rather charge properly than have to cut corners on the work we do for you.”
The relationship: “You’ve been with us since [year] and you’re one of the clients we most enjoy working with. I wanted you to hear it from me.”
Then stop talking. Let the silence sit. You’ll want to fill it with more reasons, but more reasons sound like doubt. Wait for them to respond.
Close: “Is there anything you’d like to ask about it?” Then: “Great. Nothing changes on your end, you’ll just see the new amount on your [month] invoice.”
What do I say when a customer pushes back on a price increase?
You’ll hear one of four responses.
“That’s fine.” The most common by far. Say thank you, confirm the date and move on. Don’t over-explain out of relief.
“That’s a big jump.” Acknowledge it, then hold your ground. “I understand. It’s our first increase in [number] years, so it’s catching up on several years of costs at once. From now on we’ll review prices every year, so changes are smaller and easier to plan for.”
Then actually do the yearly review. Small regular increases are much easier than big occasional ones.
“Can you do anything on that?” Have one offer ready that isn’t a discount: longer payment terms, a 12-month price lock at the new rate, starting the new price a month later, or adding something you were going to include anyway. If you discount as soon as you’re asked, you’ve told every customer your price is just an opening offer, and they’ll ask again next year.
“We’ll have to look at our options.” Don’t panic and don’t counter-offer on the spot. “Of course, I’d expect you to. If you want to talk it through after you’ve looked, I’m here.” Some will look around, realise switching is a hassle, and stay. The ones who leave were likely to leave at the next increase anyway.
How to raise prices if your business works differently
The maths works for every business. The way you tell people is what changes.
Retail, hospitality and online stores
You don’t have a list to call, and you don’t need one. The new price goes on the menu, shelf or website on the day you choose.
Pick a quieter trading day to make the change, so your team isn’t explaining it in the middle of a rush. Round to prices that look deliberate: $24 reads better than $23.40. Brief your team on what to say if a regular asks. “Our costs have gone up, and we’d rather keep the quality where it is” is plenty.
If you have a loyalty list or regular trade customers, give them a heads-up two weeks before, with a line in your next email or a sign at the counter.
Trades, builders and quote-based businesses
Your price rise lives in your next quote. Update your rates, then price every new job on the new numbers. Quotes you’ve already issued stay as they are, so there’s nothing to announce.
Repeat clients are worth a call, such as the builder who sends you regular work or a commercial client on a schedule of rates. Ring them before their next quote arrives, using the phone script above and swapping the invoice line for “you’ll see the new rates on your next quote”.
If you work under a schedule of rates in a contract, look for the clause that says when rates can be reviewed and how much notice you need to give. Follow it to the letter. If the contract doesn’t say, ask a commercial lawyer before you change anything.
Wholesale and distribution
Your trade accounts expect a price list, so send one. Before you do, read your supply agreements for a price review or notice clause. It will tell you how much notice you need to give and when prices can change.
Call your biggest accounts before the list goes out, the same way you’d treat Group A above. Your increase flows straight into their pricing, so give them at least the notice your agreement requires, and more if you can, so they can adjust their own.
Businesses that re-sign clients every year
If you scope each client’s work fresh every year based on what they need, the new fee becomes part of that renewal conversation. You’re agreeing on next year’s work and next year’s price together, so there’s no separate announcement to make.
Do the maths first, still. Talk your best clients through the new scope before the paperwork arrives, and send the new agreement at least 30 days before it starts so they can plan for it.
What to do after you raise your prices
Keep an eye on three things.
Who actually left. Write the names down and compare them with your Group C list. If your worst-fit customers left and your best ones stayed, the price rise worked exactly as planned.
Your new gross profit. Two or three months after the new price starts, compare your monthly gross profit with the figure you worked out in Week 1. This is the only measure that really matters, and it’s the easiest one to forget.
What you do with the spare time. If thirty-two customers left, you’ve got real hours back. Spend them on the customers who stayed, or on winning new ones at the new price. If that time fills up with low-value work, you’ve undone the whole exercise. Stick to your new price plan.
Then set a reminder for twelve months from now. Next year’s increase will be much smaller, and you won’t need a script for it.
Frequently asked questions
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Start with how much your costs have risen since your last increase, then check your margin. Use the table above to see how many customers you could lose at each level and still make the same profit.
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Call your most valuable customers first, then send everyone a short email with the old price, the new price, the start date and a brief reason. Don’t apologise, and give at least 30 days’ notice.
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At least 30 days. Give more if your customers budget quarterly or you have contracts with set terms. If clients sign a new agreement each year, build the new price into the renewal.
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No. An apology suggests the increase shouldn’t be happening. Give the reason once, clearly, and thank them for their business.
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Offer something other than a discount, like a 12-month price lock or longer payment terms. Discounting straight away teaches customers your price is open to negotiation.
Want help working out your numbers? Apply to work with Kindred.
