Employee Benefits

Should You Tell Customers You're Raising Prices to Pay for Health Insurance?

Rising costs have to be paid for with higher prices or lower profits.
Should You Tell Customers You're Raising Prices to Pay for Health Insurance?
Image credit: Caiaimage | Sam Edwards | Getty Images

Small business owners are facing rising costs, thanks to a combination of minimum wage increases in various states and health insurance mandates under the Affordable Care Act (ACA). Businesses with more than 49 employees working full-time hours must provide health insurance to at least 95 percent of those employees or face penalties.

As businesses scramble to navigate the benefits options available to them and their employees, they’re already wondering how they’ll manage an extra expense each month. As valuable as the changes are, many small businesses are already strapped for extra cash. As a result, some are considering the option of increasing their own prices. Here are a few things to consider before doing that.

The direct approach.

One business decided to address the issue of rising costs directly, letting customers know they were raising prices to cover the increasing cost of taking care of employees. The owners of the West Coast-based People’s Organic franchise decided to add a 3 percent “employee benefits” surcharge on each check, rather than simply raising prices across the board. The owners invite unhappy customers to merely deduct the 3 percent from the gratuity they leave if they’re disgruntled about the increase.

Related: Five Ways Businesses Are Coping With Rising Health-Care Costs

The indirect approach.

Most businesses will simply factor the increased costs into their product or service prices, along with the many other costs associated with running a business. Supplies, taxes and utilities can fluctuate in price from one year to the next and businesses merely make adjustments to accommodate those changes. Passing those small things on in the form of a surcharge on every sale would only serve to confuse customers. Just as you understand that your own vendors will occasionally need to boost their prices, your customers will understand, as well. Everyone has the option to switch to another business if those increases become too out-of-line, so it’s important for you to continue to monitor your own competitors and make sure your price increases won’t scare people off.

The disclaimer.

Some businesses incorporate the costs with an across-the-board price increase but feel bad about not letting customers know. In the name of transparency, you can announce your price increases on your social media platforms, your website or through an email to your loyal customers. Use wording that makes it clear you care about your employees and want to make sure they have everything they need to keep themselves and their families happy and healthy.

Alternatively, you could place a small disclaimer on your menu or pricing lists that mentions that your prices increased by a small percentage as of a particular date in order to manage the rising costs of maintaining a top-quality staff. Some customers will appreciate your openness, while others may choose to take their business elsewhere as a result.

Related: 4 Hacks for Lowering Health-Care Costs While Improving Employee Health

Make other choices.

Instead of increasing prices, your business has the option of making cuts. Businesses that are already operating at a bare minimum won’t have this choice, but many others have at least small cutbacks they can make. Use lean principles to review every process you have in place and find areas where you can make small cuts. As you’re choosing benefits, rely on the expertise of a specialist who can help you find the best price on the plans you choose for your workers. Even a difference of a few dollars can add up when you’re providing coverage to multiple workers. While you likely won’t want to terminate any employees, if someone leaves, carefully consider whether the position requires a full-time employee. You may be able to outsource the work to a freelancer or a firm in an area with a lower cost of living. In addition to getting the work for a lower hourly fee when benefits are factored in, you’ll also only ask for work when you need it, which keeps you from having an employee on staff who isn’t busy eight hours a day.

Related: 6 Hacks for Taking Control of Your Healthcare Costs

Businesses feel increasing pressure to remain compliant while also keeping operating costs low. When raising prices is the only option, it’s important to know your own customers well enough to determine the best way to ask for more money. In some cases, simply implementing a slight price increase might be the best choice, but many businesses will find it necessary to warn customers of the increase, especially if customers are likely to notice the change.