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When we sit down with a manufacturer who has watched material costs climb two years running, a common conversation takes place. They’ve absorbed costs. They raised prices once and haven’t revisited them since.
They’re scared to lose customers.
4 Reasons to Increase your Prices
Why even bother to increase your prices if you risk losing customers? There are, of course, a number of reasons to raise your prices. Here are the top 4 we’ve seen:
1). Market position
First, it’s a matter of attracting the right clientele; you don’t want customers that are only wiling to pay bottom-barrel prices. That only reflects poorly on your product. Compare to industry peers and pinpoint your market position.
2). Supply & demand
Always take into account your supply and demand. If you can’t keep up with product demand, it’s a pretty good reason to consider raising your prices. If you’re employing any of our favorite analytics for scaling like customer lifetime value or payback period, our outsourced CFO services would be able to tell you when you’ve outgrown your price.
Try it out: A CAC, lifetime value and payback period calculator
3). Provide more value to retained customers
Increasing your margins allows you to provide even better services or product to your customers that understand the value of it. And those who don’t? Customers that don’t are typically the ones that take up more time and investment and in the end cut into your margins even more.
4). Profitability (or inflation)
Lastly, a price hike is occasionally mandatory for general cost of living increase or operating expenses. Especially when facing increasing costs due to inflation. It’s also worth pointing out that you can shift the value and price of your product without changing the actual costs to make it. (But harder to do in the midst of soaring freight prices and supply chain costs). Increasing your profitability should always be the end-goal. Plus if you’re trying to prepare for current inflation and looking at the CPI, my only question is why wouldn’t you raise your prices?
Inflation watch: CPI jumped by 4.2% YoY in May 2026, the highest jump since 2023.
A 1% price increase does more for your operating profit than a 1% cut in costs or a 1% bump in volume.
Pricing is the fastest profit lever you own, yet most mid-market companies treat it like the brake.
2026 is not the year to keep your foot on it.
Your price increases need to coincide with real-world math.
Raw material prices rose about 5.4% in 2025, with another 4.4% expected this year, most of it traced back to tariffs on imported components. The effective U.S. tariff rate hit around 10% in 2026, the highest since 1946. Headline inflation climbed back above 4% in May, a three-year high, according to the Bureau of Labor Statistics. And manufacturing is the single most exposed sector, because it runs on imported inputs.
So yeah, no suprise your costs went up. The question is whether your prices went up to match.
In a recent industry survey, 86% of manufacturers said they planned to pass at least some of those costs along. If you are in the 14% that isn’t, you are financing your customers’ margins out of your own pocket.
The instinct to eat costs feels responsible. But it’s the most expensive habit you can start.
Raising Prices: Customer Churn
“But we’ll lose customers.”
Some, yes. The question nobody runs the numbers on is how many you can actually afford to lose.
Let’s dig into an example:
Say you sell a product for $100. It costs you $80 to make and ship, so your gross profit is $20 a unit (a 20% margin, which is real life for plenty of distributors and contract manufacturers). At 10,000 units, that is $200,000 in gross profit.
Now raise the price 10%, to $110. Your cost is still $80, so your gross profit per unit jumps to $30. To hold that same $200,000 in gross profit, you only need to sell about 6,667 units. You can lose a third of your volume (3,333 units) and land exactly where you started.
Lose nobody, and the same 10% move turns $200,000 of gross profit into $300,000. A 50% jump in gross profit dollars from a 10% change on the price tag.
Now the counterintuitive part. The thinner your margin, the more volume you can afford to lose.
A business sitting at a comfortable 40% margin can only shed about 20% of its volume on a 10% increase before it starts giving back profit. The thin-margin manufacturer can lose a third and break even. That is backwards from how most owners feel about it, which is exactly why so many underprice.
And the customers most likely to walk over a 10% increase? Usually the ones squeezing you hardest on price, paying slowest, and generating the most service headaches per dollar. That’s why it’s okay to lose your worst customer.
How to write a price increase letter
You can write a price increase letter and protect customer churn.
For example, here’s what you won’t want to happen.
XBox recently increased prices and lost millions of customers. Here’s where they went wrong:
- They increased the prices by 50% off the hop.
- They didn’t offer any additional value.
- And they didn’t protect their loyal customer base.
XBox 50% price increase cost them.
Starbucks, by contrast, has historically raised prices, named the reason (costs and labor), and declined to apologize. Reasonable customers accept a price increase when you are transparent about why.
When you tell a customer their price is going up, four things matter:
1). Timing
Pick a time to raise your prices that matches your business’ seasonal cycles. Then, give advance notice. Don’t spring the price increase on your clients for the next billing cycle. Even if you’re not selling a service, it still bodes well to give some warning. We’d suggest 60-90 days ideally. Not 30, as is the Netflix M.O.
to ninety days, not the next billing cycle. Spring it on a wholesale or distribution account and you have handed your sales team a fire to put out. Advance notice turns a surprise into a planning conversation.
2). Reason
“Costs went up” is true and boring. “We are holding the lead times, fill rates, and quality you rely on, and input costs have moved enough that the current price can’t support that” gives them a reason that is about them.
Example: “Your success is our success! Our customers saw a 30% increase in conversions last year. We’re increasing our rates so we can offer packages that include the tools our customers need most.”
3). Value
If you have improved turnaround, added a service, or absorbed cost increases for two years before this, say so first. The number lands differently after the value than before it.
Example: “This small increase means we can upgrade our servers, hire new talent (P.S. we’re hiring!) and bring more tools to help your business grow.”
4). Loyalty
Offer your top customers a legacy rate for one cycle, or the longest notice window, or a heads-up call before the letter goes out. Loyalty is cheaper to keep than to win back. These kind of offers are more likely to increase customer stickiness, reducing churn. Plus, while it may take some investment up front, if it means that client sticks with you to increase ltv (lifetime value) and that outweighs the cost up front.
Example: “As one of our most loyal customers, we want to give you the first two months of any plan at your current rate.”
Price Increase Letter Template
Use the letter template below to inform customers of a price increase:
Dear [Customer],
[Explain the value-add] Our most-requested [add-on, feature, product expansion] is ___________. And we’re thrilled to announce that [new product expansion/feature] will be launching next month. [Ideally in advance of price increase].
[Give notice] I wanted to let you know that there will be a _______% increase in price of [product or service] , effective [date, ideally 90 days out].
This increase ensures we can continue to provide the very best products and services for our customers. This means better turn-around times, more availability, and more focus on your business. [or: Faster shipping, better customer service and more new exciting offers to come!]
[Insert appreciation of loyalty] Because you are one of our legacy customers, we would like to offer you an additional month at the current rate but with [the added value of one of our strategy sessions, or, with a sneak peek of the new feature/product___________].
As always, we are committed to providing quality [products and service] to you and appreciate your business and continued support. Feel free to get in touch anytime at ______________ [email or social media messaging account]
Sincerely,
[Name]
Price Increase Letter Example
You can’t price what you can’t see
You cannot set the right price if you do not know your real cost. Not your invoice cost.
Your landed cost, with freight, duties, tariffs and handling allocated down to the item level.
That is the difference between an across-the-board 10% and a surgical increase. The first protects the average and annoys your best customers. The second raises prices most where your margin is thinnest and your pricing power is strongest, and leaves your healthy accounts alone. You can only do the second one if your books can tell the difference.
So before you touch the price list, answer one question honestly: which products and which customers actually make you money? If the real answer is “we think so,” that is the first thing to fix. Not the CFO strategy. The reporting underneath it.
Then raise your prices. The math is on your side, and it has been for a while.
Not sure your numbers can tell you what the margin is? That is the work we do before anyone sends a price increase letter. Save this, or reach out and we’ll help you get your costing straight first.
