Nobody likes to raise their prices. But in order for your business to stay profitable, grow and keep in line with its competitors, it’s necessary to review and evaluate your pricing structure and adjust accordingly. But how do you know when to increase your prices? With the 2022/23 financial year on our doorstep, now is the perfect time to review your pricing strategy.
Below, we share our top 7 Signs why it could be time to increase your prices.
Inflation You may have noticed that costs have increased on everything … equipment, material, services, cost of labour, you name it, the price has gone up. In Australia, the annual inflation rate soared to 5.1% in March 2022, up from 3.5% in December 2021 – the highest reading since the Goods & Services Tax came into operation in July 2000. It is expected that the annual inflation rate for the June 2022 quarter will be higher again.
Most lease agreements also include a CPI increase on each 12-month anniversary. With increasing CPI you will need to be prepared for a significant increase in rent costs over the next 12 months (now may be a good time to check your lease agreements and factor this into your 2022 budget).
While your business may be able to absorb some of these costs, it may be time to consider increasing your prices to offset these rising costs.
Interest Rates Higher interest rates generally go hand in hand with higher inflation. Higher interest rates can affect your business’s growth plans through higher loan repayments and lower borrowing capacity. Companies that operate with limited cash flow will also need to set aside more money to repay any loans and debt, reducing the business’s income. To develop and grow your business, it’s essential to price your products and/or services with enough margin to cover such expenses.
Increases in Award Rates / National Minimum Wage The Fair Work Ombudsman has announced that from 1 July 2022, the national minimum wage will increase by 5.2% and minimum award wages will increase by 4.6%, which is subject to a minimum increase for award classifications of $40 per week (based on a 38-hour week for a full-time employee).
The new National Minimum Wage will apply from the first full pay period on or after 1 July 2022. This means if you have a weekly pay period that starts on Mondays, the new rates will apply from Monday 4 July 2022. LEARN MORE
Superannuation In addition to the wage increases, the superannuation guarantee rate will increase from 10% to 10.5% on 1 July 2022. This rate is due to continue to increase every 12 months until it reaches 12% in 2025.
Competitor Pricing Research your competitors. Are you undercharging or staying competitive with their pricing? If your competitors are charging significantly more than you, take action and increase your prices. Your pricing needs to cover the costs of doing business. While below-market prices may help you gain work or sales in the short term, it will not make for a long-term profitable business.
Business is Booming Is your business in high demand due to its credentials, reliability, professionalism and experience? Customers want to work with and are willing to pay more for a company that delivers on these fronts. Increasing your prices can establish you as a quality leader within your industry, improve your perceived value and encourage the right kind of customers to buy from you.
Stagnant Pricing A price increase may be well overdue if your pricing hasn’t changed in a year or two. More often than not, businesses have to increase their pricing structure not because they want to but because they need to.
Price increases are an expected part of doing business. It’s important to regularly review your rates and be confident that your pricing is competitive for your sector, level of service, care, skill and results you provide to your clients, but which also allows your business to grow financially.
Please Note: Having taken our own advice, Kennedy Cross will also be reviewing our rates in July 2022.
Given how challenging the last few years have been, this decision was very difficult. However, due to significant industry wage growth and ever-increasing business and software charges, we can no longer absorb these costs and continue to deliver the highest quality service possible to you, our clients.
We thank you for your understanding and continued business. Should you have any questions or concerns, please don’t hesitate to contact the team at [email protected] or call (02) 4365 6789.
Martyn Kennedy and Peter Cross
This article does not constitute financial, legal or tax advice. For specific advice applicable to your business, please contact the team at Kennedy Cross.