If you’re a business owner and you’ve read our other articles on tackling the minimum wage problem, then you are aware that hiring remote employees from other states and outsourcing your employees can help your business stay afloat. These options may not be realistic for you right now or they simply might not be how you see your medical billing company going in the future; it’s a good thing that there are still other alternatives to combating the minimum wage problem in terms of continuing your company’s financial success.
One of these is by raising the prices of your goods and services.
Sometimes raising prices is a touchy subject for business owners.
But really…this should be a no-brainer decision for you and the success of your company.
There are definite conflicting views on this matter, between employees, consumers, small businesses, and huge companies. The last thing companies want to do is to run people off. However, some business owners aren’t aware of how to raise prices effectively to where consumers barely even notice. There are several marketing strategies that businesses can incorporate as well that lessen the blow of the price hike. It is all about knowing the ins and outs of business and how to present the rise in prices to the medical billing customer.
Your clients and consumers don’t need to know that you’re raising prices to tackle the minimum wage increase and keep your company going strong. They also don’t need to know about the benefits that will come to you and your bottom line by stretching prices a bit. And there are benefits to be had.
First, before we get into the benefits of raising company prices and how you can do it effectively as a business owner, let’s bust a common myth that many people worry about in regards to the economy after a wage increase.
Does raising the minimum wage in turn increase inflation?
Many people think that the primary consequence of increasing the minimum wage is inflation. This is because oftentimes businesses must conquer the government-mandated increase by raising the prices of their products and services.
To clarify, inflation is a quantitative way to measure the “decline in purchasing power of a given currency over time.” This is seen in the economy as a rise in price. Inflation happens when the currency of an economy loses its value. This causes the prices of goods and services to climb and consequentially causes consumers to buy or invest less in them.
Therefore, there are economists out there that say companies who raise their prices are blatantly responsible for inflation.
But there are various causes of inflation, such as market power, demand-pull (more demand/less supply), asset market boom, and supply shock. The issue of inflation and the root cause(s) of it, looking at one specific economy during one specific timeframe, is not as black and white as people think. There are too many factors that are in play for one reason to be attributed.
Economists also exist who say that when minimum wages have been raised historically, this did not lead to inflation.
Ultimately this is a controversy that may never be agreed upon, but there is data out there to support that simply raising prices minimally will not be detrimental to the economy as a whole and cause inflation.
What consumers think when prices are raised
Companies can easily counteract the effects of the minimum wage raise simply by hiking up prices here and there. However, when consumers hear of a price increase, they tend to cringe and have an immediate emotional reaction.
Take the every-so-often price hike that Hulu, the popular streaming provider, has done over the past few years.
The most recent raise had customers in a tizzy. Some made verbal threats on social media while using profanities, some accused Hulu of price-gauging, and others said they would cancel their subscription.
But most streaming services, like Netflix, never had one giant price increase. They didn’t go from $8.99 to $13.99 in one year; it took five years to get to that point. Not many people complained when prices went up each year and the rise definitely didn’t affect the number of subscribers. Actually, if you look at Netflix’s data, the number of subscribers they gain each year continues to increase significantly despite them having to pay a bit more.
When business owners become afraid of raising their prices a bit because of what their customers might think––and ultimately decide not to, they are going to continue being stuck where they are at financially and create a barrier to success for their company and employees.
Back to the wage increase and how it affects consumers in the long run…
The Raise the Wage Act of 2021 includes small, scheduled minimum wage hikes over a few years—not one huge increase. This will have a less significant effect on prices and consumers will barely notice the difference.
This sounds promising and allows you to raise prices without much pushback.
Daniel Kuehn, a research associate at The Urban Institute said in an interview with Forbes: “A wage hike might raise prices of goods and services, but the increases will be spread out among many consumers,” Kuehn says. Prices may increase, but not enough for consumers to really feel a burn in their wallets.”
In the end, there will always be individuals who fear inflation or have an opinion about a rise in prices. And of course, your apprehension as a business owner about charging customers more is acknowledged and validated; it’s not a fun thing to go through.
However, each business owner must do what they need to for the success and future growth of their company and the livelihood of themselves and their employees.
Raising prices when needed is absolutely one way to tackle the minimum wage problem.
Benefits of raising prices
Did you know that raising the prices of goods and services comes with natural marketing benefits?
That typically isn’t what most people think about when they hear prices are being raised within a business or organization. But it’s true.
Even slightly higher prices can attract a higher quality of clients to your company, and clients will place more value on what your company has to offer. Positively moving with the monetary trend shows clients and consumers that your company is one of authority and is well-respected in the business world.
In the same respect, offering goods and services at a higher price might attract higher-quality investors who have noticed your company and what you stand for.
Another benefit of raising prices is that business owners can focus on growing their business and the employees within it. More money can go toward training new leaders, investing in new technology, hiring more employees if needed, and just as important, finding new and more effective ways to retain current customers.
Lastly (although this list of benefits is not all-encompassing), by raising prices and being transparent with customers as to why, more trust and loyalty can be formed, bringing more appreciation to the table and customers back through the door (or website!).
Economy experts from the Harvard Business Review share that:
“Research shows that after the size of the price increase, the perceived fairness of the motive for it is the second-biggest driver of how customers react. The prospect of inflation, widespread shortages, rising input costs, and the return to normalcy after the pandemic are on everyone’s mind these days. Under such circumstances, when customers receive word that the brand’s price is increasing, it simply confirms what they’ve been expecting. It is worth making the effort to craft a short and forthright explanation for why the brand is raising prices.”
Authenticity and transparency matter.
Finally, if you choose to raise prices, understanding the known-to-work business tactics that go along with raising prices is a must.
The best business tactics to take when raising prices
No business owner wants blindly to go into raising prices without knowing the best marketing strategies for doing so. This topic should be an entirely separate article. However, we’ll give you the gist of it here so you have a better understanding of the business tactics required to sail smoothly into higher prices without much backlash from customers.
The first important tactic is to build your brand––or simply rebrand your company.
You want your customers to be as loyal as possible before you decide to raise prices. This might seem manipulative, but this really is something you should be doing anyway as a business owner. On social media, in brick and mortar stores, and the office, work hard to build trust and loyalty and give your customers and clients a reason to go back to you for more. Find creative ways to highlight why your product or service is the best and showcase why they need it now. Once a small price increase comes, they’ll already be hooked on your brand and what it means to them.
Another smart business tactic (which we already touched on previously) is to have an honest conversation with customers and clients about why prices are increasing. Justifying the reason why will lessen the sneakiness of the entire process. Allow them to vent, ask questions, or voice their concerns while validating them and remaining non-judgemental.
A tactic that streaming services (and most companies) use quite often, as you noticed earlier in this article, is to increase prices gradually over a set period of time. You might need for a certain product to increase by $10 immediately, but will that be a smart move in terms of retaining customers and continuing to make a profit? Probably not. You can otherwise increase it by $2 each year over 5 years. Customers can adapt better to small changes over time, which is also why the Raise the Wage Act will occur over 5 consecutive years.
The last tactic we want to be sure to mention is to add some sort of value or improvement that correlates with the price increase. If you must increase a product by $5, find something to add that will benefit the customer and placate them a bit over the situation. For instance, will they get a free subscription to something, added to a monthly drawing to win something, receive an upgrade or update, or get the premium option? Think about how to lure customers in even when there is a much-needed price increase.
There is a wide variety of marketing tactics you can employ as a business owner that will help you raise prices without a fuss.
Conclusion
Increasing prices is a common decision when things get tough. Whether a company provides a service or a product, it is often necessary to increase the cost. Ultimately, it is one of the easiest and best solutions business owners can do when they need to balance things out or make a profit. Minimum wage increases are not going anywhere; it is best to accept them as a fact of life and the direction our economy is going in. Business owners need to be proactive about this issue and make big moves now that will secure their financial well-being and their company’s productivity and success.