A net of 61 percent of small businesses raised their prices at the start of 2022, according to the National Federation of Independent Business. The percentage is the highest it’s been since 1974. The increase coincides with a 7.5 percent rate of inflation reported in January 2022 by the Bureau of Labor Statistics.
The overall rate of inflation is spurring price hikes for some small businesses. “If we did not raise our prices, we would have worked just as hard as the prior year and made less money because inflation would eat away our profit,” Wendy Barlin, CPA and founder of About Profit, a tax strategy firm based in Staten Island, told The Epoch Times. Her company raised fees 10 percent for 2022.
Along with this increase, team members of the company are getting more in wages. “We are giving 10 percent raises to our team members,” Barlin explained. “With the Great Resignation, we want to keep our A players and we need to treat them the same way. They are being affected by inflation too.” The company has 16 team members.
Much of the price increase can be attributed to what companies need to spend on supplies. “We had to raise our prices within the last 12 months for a few reasons, the primary of these being our incurred costs have also increased,” Jacob Shirar, president and CEO of Rocky Mountain Finishes, a small business in Craig, Colorado, told The Epoch Times. Rocky Mountain Finishes is a custom pre-finisher that offers pre-stained and pre-painted products like siding, flooring, trim, and doors.
“We’re often asked to not only finish the products but to also supply them,” Shirar explained. Supply chain issues have led the price of building goods to climb, and Shirar has seen building materials for his company go up at rates between 12 percent and 20 percent over the past year.
“Even things like paints and stains, and the internal resins and pigments that give them their colors, have increased around 10 percent year-over-year,” he added. “We just can’t absorb those costs.”
Customer reactions have varied. In Barlin’s case, clients were understanding of the price increase, she explained. For Shirar, there’s been no major impact on the volume of sales. The overall profit, even with the higher prices he’s charging clients, hasn’t changed. As he explained, “We’ve just had to spend more to make the same.”
In some instances, a price change has led customers to explore other options. When the My Supplement Store, which sells nutritional products, faced shortages for ingredients, it had to pass the increasing cost adjustments along to customers. Due to supply chain issues, the price it paid for creatine, a substance which provides energy to muscle cells, went up by a considerable amount.
“Six months ago we, sold 500 grams [of creatine] for about $20,” Jeff Moriarty, marketing manager at My Supplement Store, told The Epoch Times. “Now, that same product is nearly $50.”
Customers’ response to the price hike has been negative. “We have found the sales of this product drop by almost 50 percent, hearing from many customers that they are scouring the Internet looking for cheaper prices from companies that still have stock of their old inventory,” Moriarty said.
Some companies are using the price changes as a chance to rework their business plan or marketing efforts. “It’s almost always more costly to recruit new customers than it is to raise rates and explain why to current clients,” Lattice Hudson, founder of Lattice & Co. that provides coaching services to entrepreneurs, told The Epoch Times. “What mattered most to my company was retaining higher-quality clients.”
Hudson focused on keeping high-quality clients when she decided to raise prices to pay higher wages to employees. “A price increase helped me narrow down the clients who supported the growth of my business,” she explained. Those who weren’t happy with the higher price took their business elsewhere.
For certain companies, raising rates has even led to higher amounts of business. “Seeing employees leave in 2021 required us to increase compensation rather rapidly,” Tim Brown, owner and lead strategist at Hook Agency, which provides marketing services for contractors and is based in Minneapolis, Minnesota, told The Epoch Times. “To keep our best employees, we had to raise prices.” The raise didn’t scare off as many customers as he feared; in fact, sales went up after the price increase.
The motive for the higher sales may be tied to how customers view the company. “I believe the perception of value actually went up—just because we were more expensive,” Brown said.
“When businesses avoid raising prices, there’s always a sacrifice that has to be made,” Hudson noted. “Some companies downgrade their quality of products, while others refuse to increase employee salaries to keep up with inflation. Pricing strategies must be updated to maintain quality standards.”