When did you last increase your prices?

Many business owners get very nervous when it comes to increasing prices due to the fear of the customers shopping elsewhere. But what if you knew your competitors were also going to increase their prices? 

If you could predict that, you may not be so concerned with increasing your own. Okay, you might have a couple of customers complain, but you’d be able to blame market forces with the confidence that if they shop around they will find prices across the board have risen.

The British Chambers of Commerce have recently done a study on 1,500 small businesses and concluded that two-thirds of them are going to increase prices in 2017 due to the exchange rate movements. These days a lot of businesses import goods from overseas, but since the referendum exchange rates have hit sterling by as much as 20%.

So if you didn’t increase your prices at the time then you have been suffering lower margins and lower profits.

Even if you don’t import things to the UK, you’ll still catch the cold of the exchange rates since some of your suppliers might have to increase their prices. Fuel, for example, is often imported to the UK meaning that delivery costs have increased.

Large businesses have backup plans in place for this type of thing, mainly because:

• They have the buying power to convince their overseas supplies to do transactions in sterling, avoiding their risk of exchange rate movements.
• They might have forward contracts with their suppliers, fixing prices for a period of time. It’ll be inbuilt in the contract that the price of goods will change in line with the exchange rates.
• They might have set sums of money aside in bank accounts in other currencies, to hedge against the risk of exchange rate movements.

Because of this, the bigger companies often manage to delay their price increases by quite a few months. But, since the referendum was some time ago, even the bigger companies are now coming under pressure to increase prices. So you won’t be alone! (and your customers will be much more understanding and accommodating).

Following the referendum, it was hoped that whilst importing businesses suffered, those exporting would thrive. Unfortunately, with the benefit of hindsight we can now see that exporters are not benefiting greatly from the exchange rate changes. And, since there does not appear to be an end in sight of the low sterling value, it means that all UK businesses are suffering irrespective of size or their nature of being importers/exporters.

So the question is, how much should you increase prices by? And what will the potential impact be?

A4G LLP and sister company A4G Growth LLP are able to help advise in this area by running through some “what-if” scenarios with you. Pop your details in the contact form below to have a chat with one of our Advisers.