Reaching the $1MM business revenue milestone is an achievement in itself which proves that you have...
Your material costs increased 12% last year. Labor costs rose 8%. Utilities jumped 15%. Yet your prices increased only 3%—or not at all. Every month, margins erode a little more. You know you need to raise prices, but fear losing customers holds you back.
This fear is real but often exaggerated. While some price increases do cost business, most manufacturers can raise prices 3-7% annually with minimal customer loss—IF they time it right, communicate effectively, and execute strategically.
The manufacturers who maintain healthy margins aren't just lucky with low costs. They're systematic about pricing, regularly implementing increases their customers accept because they're timed well, justified clearly, and delivered professionally.
Here's how to identify when to raise prices and execute increases that stick.
Signs It's Time to Raise Prices
1. Costs Have Increased Significantly
The most common and compelling reason to raise prices: your costs went up.
Calculate your cost increase:
- Material costs up 10%?
- Labor costs up 8%?
- Overhead costs up 5%?
- Overall cost increase: ~8% weighted average
If you haven't raised prices proportionally, margins are eroding. This is unsustainable.
The math is simple: If your COGS represents 65% of revenue and increases 8%, you need approximately 5.2% price increase just to maintain margin dollars (65% × 8% = 5.2%).
Understanding how to determine cost of goods sold (COGS) in manufacturing helps quantify the cost pressure driving price increases.
2. You Haven't Raised Prices in 18+ Months
Even without dramatic cost spikes, gradual inflation erodes margins. If you haven't raised prices in 18+ months, you've likely fallen behind.
Cumulative inflation impact:
- Year 1: 3% inflation = 3% margin erosion
- Year 2: 3% inflation on higher base = 6.09% cumulative
- Year 3: 3% inflation = 9.27% cumulative
Three years without price increases? You've effectively cut prices 9%+ in real terms.
Industry norm: Most B2B manufacturers raise prices annually, typically 3-5%. If you're not keeping pace, you're losing ground.
3. You're Running at Capacity
When demand exceeds capacity, prices should rise. Economics 101: scarce supply commands premium pricing.
Indicators you're capacity constrained:
- Lead times stretching beyond normal
- Turning away business or quoting extended delivery
- Operating at 90%+ capacity utilization
- Overtime becoming standard rather than exceptional
Raising prices in this situation serves two purposes: improves margins on business you're doing AND reduces demand to manageable levels.
Understanding capacity planning for manufacturers helps manage demand through pricing.
4. Customers Aren't Negotiating
When customers accept quotes without pushback, you're likely underpriced.
Question patterns revealing pricing power:
- "When can you deliver?" (not "What's your best price?")
- Accepting first quote without negotiation
- Competitors charging 10-15% more for similar offerings
- Customers praising your value relative to price
If customers readily accept current pricing, they'd likely accept modest increases.
5. Your Value Proposition Improved
When you've enhanced your offering—better quality, faster delivery, improved service, additional features—you've earned price increases.
Value improvements justifying price increases:
- Quality improvements (lower defect rates, better specifications)
- Faster lead times or better on-time delivery
- Enhanced customer service or technical support
- Certifications or capabilities competitors lack
- Product improvements or additional features
Don't give away value improvements. Monetize them through pricing.
Understanding pricing metrics every CFO should track helps identify pricing opportunities.
Strategic Timing for Price Increases
When you implement price increases matters as much as the amount:
Annual Planning Cycles
Many industries have natural annual cycles—budgets set in fall for following year. Time price increases to these cycles.
Advantages:
- Customers expect annual adjustments
- Easier to incorporate into their budgets
- Industry-wide price increases provide cover
- Clear cadence creates predictability
Timing: Announce 60-90 days before effective date, aligning with customer planning cycles.
Cost Event Triggers
Significant cost events create clear justification and urgency.
Triggering events:
- Supplier price increases (steel, resin, components)
- Tariff or regulatory changes
- Labor market shifts requiring wage increases
- Energy cost spikes
Timing: Implement 30-60 days after cost event, while cause-effect relationship is clear.
Contract Renewals
Contract renewals provide natural reset points for pricing.
Advantages:
- Expected part of renewal conversation
- Opportunity to discuss value delivered
- Customer can evaluate total package (price, terms, service)
- Existing relationship provides pricing power
Approach: Present renewal pricing 90 days before expiration, giving adequate negotiation time.
Seasonal Low Points
If your business has seasonal patterns, implement increases during slow periods.
Advantages:
- Less risk (losing slow-period business hurts less)
- More time for customer conversations
- Can offer early-order discounts for peak season
- Time to adjust if customers resist
Timing: Implement 90+ days before peak season, allowing adjustment period.
Understanding dynamic budgeting approaches helps plan price increases into financial projections.
How Much to Increase
The Modest Annual Increase: 3-5%
When to use: Regular annual adjustment, no dramatic cost changes
Customer reaction: Typically accepted without issue if communicated as routine adjustment for cost inflation
Example: $100 part becomes $103-105
The Cost-Recovery Increase: 5-10%
When to use: Significant cost increases requiring recovery
Customer reaction: Requires clear justification but accepted if well-communicated
Example: "Steel costs increased 12%, requiring 7% price adjustment"
The Value-Based Increase: 10-15%+
When to use: Substantial value improvements, capacity constraints, or significant market underpricing
Customer reaction: Requires strong justification and possibly phased implementation
Example: "Quality improvements reduced your defect costs 20%, justifying 12% price increase"
General principle: Smaller, more frequent increases are easier to implement than large, infrequent ones. 5% annually beats 15% every three years.
Communication Strategies That Work
How you communicate price increases dramatically affects acceptance:
Announce Early
Minimum lead times:
- Spot purchases: 30 days
- Regular customers: 60 days
- Contract customers: 90 days
- Strategic accounts: 90-120 days
Early notice shows respect and professionalism. Last-minute increases feel like surprises; well-announced increases feel like planned adjustments.
Provide Clear Justification
Explain why prices are increasing:
Good: "Material costs increased 15%, labor costs rose 8%, and we've invested in quality improvements. This 6% increase ensures we maintain the quality and service you expect."
Poor: "We're raising prices 6% effective next month."
Customers accept justified increases. Unexplained increases feel arbitrary.
Emphasize Value, Not Just Cost
Frame increases around value delivered, not just costs incurred.
Value framing: "We've maintained 99.2% on-time delivery, reduced defects by 40%, and provided responsive technical support. To continue this performance level as costs increase, we're implementing a 5% price adjustment."
Cost framing: "Our costs went up, so we're raising prices."
Value framing reminds customers what they're paying for; cost framing focuses only on your problem.
Offer Options
Give customers choices to maintain some control:
Price increase scenarios:
- Accept increase, maintain current terms and service
- Lock in current pricing for 12 months with volume commitment
- Accept larger increase in exchange for extended payment terms
- Pay increase but receive priority delivery scheduling
Options reduce resistance by giving customers agency.
Make It Personal
For strategic accounts, personal communication matters:
Email blast: Adequate for transactional customers Personal call: Appropriate for significant accounts In-person meeting: Best for strategic accounts representing substantial revenue
Personal touch for important relationships shows you value them.
Understanding how to conduct pricing and margin analysis provides the analytical foundation for pricing decisions.
Execution Strategies
Grandfather Existing Orders
Approach: Price increase applies to orders placed after effective date. Orders already in backlog honor old pricing.
Advantages: Shows good faith, customers don't feel blindsided on committed orders
Consideration: Can create rush of orders before deadline. Be prepared.
Phased Implementation
Approach: Implement increase in stages—3% now, 3% in six months
Advantages: Easier to accept smaller changes, demonstrates flexibility, provides adaptation time
Best for: Large increases (8%+) that might shock customers in single step
Selective Implementation
Approach: Different increases for different customer segments or products
Advantages: Can charge more where you have pricing power, less where markets are competitive
Example:
- High-margin specialty products: 8% increase
- Commodity products: 3% increase
- Strategic accounts: 4% increase
- Small transactional customers: 6% increase
Risk: Customers compare notes. Be prepared to justify differences.
Bundle Value Enhancements
Approach: Combine price increase with service or product improvements
Advantages: Gives customers something positive alongside increase
Examples:
- Price increase + extended warranty
- Price increase + priority delivery
- Price increase + technical support access
- Price increase + inventory management services
Customers accept increases more readily when receiving additional value.
Managing Customer Pushback
Some customers will negotiate. Be prepared:
Have Your Bottom Line
Know your minimum acceptable price before conversations start. What's the lowest you'll go and still maintain adequate margins?
Without this: Negotiations become guessing games. You might concede too much.
With this: You know when to walk away or when to offer alternative value.
Be Willing to Lose Some Business
Not all business is worth keeping at any price. If customers refuse justified increases and force pricing below sustainable margins, let them go.
Reality: Most threats to leave are bluffs. Many customers who push back ultimately accept increases.
But some won't. That's okay. Losing 5% of customers while maintaining margins on 95% improves profitability substantially.
Offer Alternatives to Price Concessions
Instead of lowering price increase:
Alternative value propositions:
- Extended payment terms (costs you less than price concession)
- Volume commitments (provides planning visibility)
- Longer contract duration (customer retention)
- Self-service options (reduces your support costs)
- Standardized specifications (reduces your complexity costs)
Creative solutions often satisfy customers without compromising margins.
Document Everything
For customers who refuse increases:
Document: Customer declined price increase effective [date], agreed to continue at current pricing through [date], with understanding that future increases may be larger to compensate.
Prevents disputes later about what was agreed.
Understanding strategies for profit includes strategic pricing discipline.
Measuring Success
Track these metrics after price increases:
Customer retention rate: What percentage stayed vs. left?
- Excellent: >95% retention
- Good: 90-95% retention
- Acceptable: 85-90% retention
Price realization: What percentage of increase did you actually capture?
- Excellent: >90% of planned increase
- Good: 80-90%
- Poor: <80%
Revenue impact: Did total revenue increase despite any volume loss?
Margin impact: Did gross margin percentage improve as intended?
Competitive response: Did competitors follow with increases?
Most manufacturers find they lose less business than feared and capture more margin than expected.
Common Mistakes to Avoid
Waiting too long: Implementing one large increase after years of no increases is harder than regular modest increases
Poor communication: Announcing via form letter with no justification breeds resentment
Inconsistent application: Treating similar customers differently without clear rationale creates perception of unfairness
Backing down too quickly: First pushback doesn't mean increase won't stick. Most customers accept after initial resistance.
Not tracking results: Failing to measure customer reaction prevents learning for next increase
Apologizing excessively: Price increases for cost recovery or value delivery aren't something to apologize for—they're normal business
The Bottom Line
Price increases are necessary for sustainable manufacturing businesses. Costs rise. Value improves. Margins must be maintained. The question isn't whether to raise prices but when and how.
Raise prices when: costs have increased significantly, you haven't raised prices in 18+ months, you're at capacity, customers aren't negotiating, or your value proposition improved.
Time increases to: annual planning cycles, cost events, contract renewals, or seasonal low points.
Communicate through: early announcements, clear justification, value emphasis, options, and personal touch for key accounts.
Execute via: grandfathering existing orders, phased implementation, selective application, or bundled value enhancements.
Most importantly: be systematic, not apologetic. Regular modest increases are normal business practice. Customers expect them. Your fear of losing business is likely overestimated. And maintaining margins through strategic pricing is essential to long-term success.
The manufacturers who thrive don't avoid price increases. They implement them regularly, communicate them professionally, and maintain the margins required to reinvest in quality, capability, and growth.
