How to Raise Prices on Services: How to Tell Customers and Check the Consequences

It's convenient to raise prices in four steps: calculate how many customers you can lose without hurting profit, choose the new price, calmly tell customers with a specific date, and track the result for several weeks. The key figure here is the customer-loss limit. It shows how many customers can leave while the new price still turns out to be profitable.

Let's go through each step on an example. When exactly it's time to raise prices is covered in the article on signals. Here we talk about how to do it.

In plain terms. Picture a bakery where bread cost $5 and now costs $5.50. The bakery gets more from every loaf. If there are slightly fewer buyers, total earnings can still grow. If every second one leaves, they'll shrink. The limit is somewhere between, and it can be calculated.

How many customers you can lose

A raised price gives more from every customer, so even if some leave, the total amount may not decrease. The limit can be calculated.

Picture a specialist. A service costs $100, the specialist is paid 40% of the price, and materials cost $10. Right now they perform 50 such services a month.

Step one: what's left from a service now. $100 × 0.6 − $10 = $50. Over a month, 50 × $50 = $2,500.

Step two: what's left at the new price. Let's raise the price by 10%, to $110. Then $110 × 0.6 − $10 = $56.

Customer-loss limit = 1 − Left now ÷ Left at the new price

Step three: the loss limit. 1 − $50 ÷ $56 = about 0.107, which is 10.7%. Out of 50 customers, you can lose up to 5 (then 45 × $56 = $2,520). If 6 leave, you're left with 44 × $56 = $2,464, which is less than the earlier $2,500.

A pattern is visible: the loss limit roughly equals the price increase. Raise by 10%, and you can lose about 10% of customers. The limit shows the threshold above which an increase is no longer profitable. It doesn't predict how many customers will actually leave.

There's a second effect too. If customers leave, places in the schedule free up, and they can be filled with new ones. So the real loss of profit is usually smaller than the calculated one.

How to tell customers

Customers can take a new price more calmly when they've been told in advance and given a short reason.

A named date. It matters to a customer to know from which date the new price applies. The time needed for the warning depends on how often customers come: if once a month, a few weeks is enough.

A reason in one sentence. Usually it's rising costs: materials, rent, pay. A short explanation is enough.

Old bookings preserved. Bookings made before the date of the increase stay at the old price. That can take the tension out for regular customers.

The message can be simple: “From the 1st, the price of the service will be $110. Bookings made before that date stay at the current price.”

Where to start

Raising prices on everything at once isn't necessary. It's more convenient to start with the services where the remainder is smallest: there the increase gives a more noticeable effect, and little changes for customers. Which services have the lowest margin is visible from the ranking of services by margin.

How to check the result

After the increase, it's convenient to watch two indicators for several weeks: the number of bookings and the number of repeat visits. They're worth comparing with what things were before the increase, and with the loss limit from the calculation.

If no more customers left than the limit allows, the increase was justified. If more did, the price turned out too high for this group, and it's convenient to go back to the calculation to choose a smaller step. For that, it's best to write down in advance how many customers there were and what the price was.

How to calculate this from your own data

In BizCalc, you change a service's price in the “Services” section and immediately see the new “Profit” column. In the “Forecast” section, the “−” button reduces utilization, so you can check what happens to profit if some customers leave.

The “Analytics: Calculation” section contains an “Efficiency Analysis” block with a ranking of services by margin: by sorting it, you see which items to start with.

What's worth remembering

• The customer-loss limit is simple to calculate. It shows how many customers can leave without hurting profit.

• The limit roughly equals the price increase. A 10% price rise allows you to lose about 10% of customers.

• Tell customers in advance. With a date and a short reason.

• Old bookings stay at the old price. That can take the tension out for regular customers.

• Check the result over several weeks. Look at bookings and repeat visits.

Frequently asked questions

How do you raise prices without losing customers?

Tell them in advance with a date, briefly explain the reason, keep old bookings at the old price, and raise gradually, starting with the items with the smallest remainder.

By how much can you raise prices?

There's no single figure. It's convenient to calculate the customer-loss limit for several options and choose the one that looks safe to you. It's often convenient to raise gradually.

How many customers can you lose after an increase?

Roughly as many percent as the price was raised by. In the example, a 10% increase allows you to lose up to 10.7% of customers.

How far in advance should you warn customers?

It depends on how often they come. If once a month, a few weeks is enough. The main thing is to name a specific date.

What should you do if customers left?

Compare the number of lost customers with the limit from the calculation. If the loss is within it, the increase is justified. If more, it's convenient to go back to the calculation and choose a smaller step.

Is it worth raising prices on all services at once?

Not necessarily. It's more convenient to start with the services with the lowest margin.