QUESTION: Yaneek, I enjoy your articles and learn so much from you. I have a small salon and my prices stay the same since I opened in 2016, but the cost of living is going up every day now. All hair products, the light bill, water rate, transport costs and so forth are increasing. I usually make a young lady work with me on weekends when it is busy in the shop and I had to top up her pay because of the same thing. The worse part, I have not confirmed it yet, but we have been hearing that the landlord is planning to raise the rent on the plaza. It is stressing me out. My boyfriend said I should increase my prices; and I want to but I’m worried about losing. I have never done that and wondering now how my customers will take it. What is your advice?

– Annie

BUSINESSWISE: I appreciate your kind words and faithful readership.

I agree with your approach of treating price increases with caution, particularly since you’re a relatively new salon with no historical data to help guide this decision-making process.

I can’t say how your customers will respond to a price increase or whether a price increase is your best option to manage increased costs of inputs and overheads at this time. That is a decision you will need to come to after considering several factors, doing some research, and hopefully even gauging your customer’s feedback.

Here are some of the most important factors for you to consider before effecting a price increase.

 

1. What is the price elasticity of demand for my goods and service?

 

Price elasticity of demand measures the responsiveness of demand after a price change and helps a business estimate the likely impact on sales that increases or decreases in price will have. Generally, goods and services that consumers can’t do without and have limited substitute for tend to be more price inelastic than those which they can do without or substitute. It is therefore easier for providers of such goods and services to effect price increases without any considerable fall-off in demand. For example, you could reasonably expect that motor insurance, bread, electricity, water, petrol and cooking gas would be relatively price inelastic when compared with hairdressing, barbering or fashion apparel and accessories.

The question becomes, how much of an increase, if any, will they absorb? Will they accept an increase across the board in all services? When would be the best time? Is a price increase the only way to go? Can you find ways to become more efficient – like find new suppliers and conserve electricity and water – were your customers to reject a price increase?

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