Raise your price when your margin falls below what you need, and do not wait for the gap to grow. Work out the new price from your updated cost (price = cost ÷ (1 − margin)), calculate how many sales you could lose without earning less, and tell customers in advance with a short reason. An increase that is announced and backed by numbers defends itself. What upsets customers most is feeling that something was changed behind their back.
When to raise prices
There are three clear signals:
- Your cost went up and your margin dropped below what you need. This is the most common reason. Fruit, butter, sugar or jars go up and your price stays put.
- You never costed properly. If careful costing shows you left out your time, energy or waste, your price was always too low.
- You cannot keep up with orders. If demand is more than you can make, your price is probably below what customers are willing to pay.
To spot the first one in time, check your costs on a routine rather than when it already hurts. The guide on how often to update your costs tells you what to watch.
How much to raise
Do not add "a dollar" by eye. Work out the price you need from the new cost:
new price = new cost ÷ (1 − margin)
Then round it to a price that is easy to charge, and check what margin it leaves. Round down and you fall slightly short; round up and you get a cushion for the next cost increase.
If your prices include sales tax, do these calculations on prices before tax and add the tax at the end.
How many sales you can afford to lose
The fear of raising prices comes from thinking you will sell less. You might. The useful question is how many sales you can lose before you earn less than you do now:
sales you need = what you keep in total today ÷ what you will keep per unit at the new price
The number is almost always lower than you fear, because each sale at the new price leaves you noticeably more.
Worked example: a jar of jam
You sell 400 g jars of strawberry jam at $7.00 at a farmers market and to a few regulars. When you set the price, your loaded cost was $3.50 a jar: a 50% margin. You sell about 120 jars a month.
Strawberries and sugar went up. You recost, and your loaded cost is now $4.20.
What happens if you do nothing:
- Margin: (7.00 − 4.20) ÷ 7.00 = 40%
- You keep 7.00 − 4.20 = $2.80 a jar
- Per month: 120 × 2.80 = $336. Before it was 120 × 3.50 = $420. You lose $84 a month and nobody tells you.
The price you need to get back to 50%: 4.20 ÷ 0.50 = $8.40. You round up to $8.50.
- Margin: (8.50 − 4.20) ÷ 8.50 = 4.30 ÷ 8.50 = 50.6%
- You keep $4.30 a jar
How many jars you can stop selling:
- To earn the same as not raising the price ($336): 336 ÷ 4.30 = 78.1, so 79 jars. You could lose 41 jars a month, about a third, and still be better off than not raising.
- To get back to the $420 you made before: 420 ÷ 4.30 = 97.7, so 98 jars. You could lose 22 jars a month and be where you were before strawberries went up.
- If nobody leaves: 120 × 4.30 = $516 a month.
| Scenario | Price | You keep per jar | Jars a month | You keep a month |
|---|---|---|---|---|
| Before the fruit went up | $7.00 | $3.50 | 120 | $420.00 |
| Dearer fruit, same price | $7.00 | $2.80 | 120 | $336.00 |
| New price, same sales | $8.50 | $4.30 | 120 | $516.00 |
| New price, 22 fewer jars | $8.50 | $4.30 | 98 | $421.40 |
Raise the price or change the size
Sometimes there is a ceiling: if every jam at the market is around $7, $8.50 can look expensive. Another way out is to offer a different size.
Say that of your $4.20 cost, $3.00 is fruit and sugar, which shrinks with a smaller jar, and $1.20 is the jar, lid, label and your time, which does not. A 300 g jar would cost 3.00 × 0.75 + 1.20 = $3.45. At $7.00, your margin is (7.00 − 3.45) ÷ 7.00 = 50.7%.
The condition is saying so. Sell the 300 g jar as exactly that, with the weight on the label and on your sign. You can even keep both: 300 g at $7.00 and 400 g at $8.50. Quietly shrinking the jar and charging the same is the fastest way to lose your regulars, because they notice.
How to tell your customers
- Give notice. A sign on your stall or a message to your customer list one or two weeks ahead.
- Give a short, true reason. "Fruit and sugar have gone up" is enough. No need to apologise at length.
- Say what is not changing. Same fruit, same size, same recipe.
- Raise by what you need, once. Three small increases in three months wear people down more than one.
A message that works: "From next Saturday, our 400 g jam goes to $8.50. Fruit and sugar have gone up and I would rather not change the recipe or the size. Thanks for sticking with us."
Customers with agreed prices
If you sell to shops or cafés, give them more notice: they have to change their shelf price too. Check that your new price plus their margin still fits what sells in their shop. The guide on wholesale and retail prices shows how to do that sum.
Catering orders you have already quoted are honoured at the agreed price. Use the new price on the next quotes, and put an expiry date on every quote so this does not catch you again. See how to price a catering order.
After the increase
Watch your sales for three or four weeks before drawing conclusions. In the first week some customers buy less out of habit and then come back. Compare what you keep per month in money, not just how many jars you sold.
The customers who come back often are the ones who keep your business going, and they tend to stay if they feel the product is worth what it costs. The guide on keeping customers coming back has ideas for looking after them. The full method for reaching a price is in how to price a food product.
Do it with the calculator
In the food cost calculator, update the prices of the ingredients that went up and see straight away your margin at the current price and the price you need to get back to your target.
Frequently asked questions
Is it better to raise prices a little at a time or all at once?
Usually all at once, by what you need. Adding 20 cents every month means explaining yourself every month. One well-calculated, well-announced increase bothers people less than several small ones.
How much notice should I give before a price increase?
For walk-up customers, one or two weeks is enough. For shops, cafés and regular standing orders, give more, so they can adjust their own prices.
Can I make the product smaller instead of raising the price?
You can, as long as you say so. A new size with a clear price is an honest option. Shrinking the portion quietly is what makes customers stop trusting you.
What if sales drop after I raise the price?
Measure for three or four weeks before deciding anything. Compare what you keep in money, not just how many units you sell: at the new price you can sell fewer and earn more.