Your supplier raises costs 10%. You raise prices 10%. Margin preserved, everyone moves on. That is the version where it works, and it works more often than people think, as long as you understand which 10% the math requires. The trap is raising the price by the dollar amount of the cost increase instead of the percentage. A product that costs $60 and sells for $100 runs a 40% margin. Costs jump 10% to $66. If you add the $6 to the price and sell at $106, your margin is now 38%, not 40%. To hold the 40%, the price has to go to $110, which is a 10% price increase, not a $6 one. Margin math runs on percentages. Costs are percentages. Match them.
Stage it, do not shock it
The number is only half the job. The other half is how the increase arrives. Customers absorb small, regular increases far better than one correction after years of frozen prices. The working pattern is 5 to 8% twice over 18 months rather than a single 20 to 30% jump. Say you need to move a $100 price to $125. The staged version goes to $108 now, $117 in eight months, and $125 in sixteen months. Each step feels modest. The exception is a sudden, large cost shock, where one bigger increase with a clear explanation reads more honest than a series of increases that starts to feel like nickel-and-diming.
Flat dollar increases fail for the opposite reason. A $5 increase on a $20 service is a 25% jump that customers notice immediately. A $5 increase on a $300 service is 1.6%, which will not keep pace with your costs and barely registers. Use percentage increases so every product holds its margin. And skip the 3% token bumps while you are at it. On a $100 haircut, a 3% increase is $3, which is not worth the software changes and the anxiety, and it does nothing for your profit.
The re-anchor move
Little Caesars ran the experiment for everyone and paid for it with stalled sales. When it raised the price of the $5 Hot-N-Ready pizza, volume went flat. It quickly returned the $5 promotion and introduced the Extra Most Bestest pizza at $6. The old price became the value option again, the $6 pizza looked like an upgrade by comparison, and customers rationalized the extra dollar. The trick generalizes: instead of raising one price, add a tier. Keep an entry option near the old price, and let the middle and premium tiers carry the increase. Customers who feel they chose their price do not experience a price hike. They experience options. A premium item also re-anchors everything below it: the $58 tasting flight exists partly to make the $34 entree feel sensible.
Bundling works on the same principle. A landscaping company that bundles spring cleanup plus mulching at $400 instead of $250 plus $200 separately keeps customers feeling like they got a deal while holding or improving margin on the package. The rule for any bundle: cost every component, add your normal markup, discount the bundle 10 to 20% off the separate prices, and check that the bundle margin still hits your target.
How to say it
Give 60 to 90 days notice so customers can adjust their budgets. Then state the new price plainly and stop. No public announcement posts, no "we tried to hold off as long as we could." One salon-pricing consultant puts the template at six words: "Today's cut is $100. Next time it will be $120." Notify people individually at checkout or in their confirmations, and do not project your finances onto the customer. One more rule from the agency world: never blame inflation in the announcement. Cite specific improvements, new equipment, better materials, expanded service, and let customers decide.
The part nobody says out loud: some customers will leave, and that is priced in. Customers who leave over a 5 to 10% increase were rarely your most profitable ones. Higher margins on the customers who stay usually beat thinner margins on the ones who only ever came for the low price. Normalize small annual increases so the number never has to jump again, and the price conversation becomes routine maintenance instead of a crisis.
Frequently asked questions
How much should I raise prices when costs go up 10%?
To hold the same margin percentage, price must rise by the same percentage: a product costing $60 and selling at $100 (40% margin) costs $66 after a 10% increase, so the price must become $110 to keep the 40% margin. Raising the dollar amount of the increase only ($106) shrinks the margin to about 38%.
Should I raise prices all at once or in stages?
Staged increases land better. A common pattern is 5 to 8% twice over 18 months rather than one large jump. For example, moving a $100 price to $125 can be staged as $108 now, $117 in 8 months, and $125 in 16 months. Each increase feels smaller and more acceptable.
What did Little Caesars do when it raised its $5 pizza price?
It raised the price of the $5 Hot-N-Ready pizza, watched sales go flat, then returned the $5 promotion and introduced an 'Extra Most Bestest' pizza at $6. The new premium item re-anchored the old price as the value option and made the $6 choice feel like an upgrade.
Why are flat-dollar price increases a bad idea?
A flat $5 increase is a 25% jump on a $20 service and a 1.6% rounding error on a $300 one, so low-ticket items get sticker shock while high-ticket items stay behind inflation. Percentage-based increases keep every product's margin consistent.
How do you announce a price increase without losing customers?
Give 60 to 90 days notice, state the new price plainly, and skip the public apology post. Notify customers individually at checkout or in confirmations. Do not blame inflation in the announcement; cite specific service or product improvements instead.
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