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Is It Time to Raise Prices?

To keep up with increasing costs--and big competitors' prices--more small businesses are pulling the trigger on the pricing gun.

This story appears in the September 2005 issue of Entrepreneur. Subscribe »

If you've been swallowing the rising costs of doing business, watching as soaring energy prices and exorbitant health-care expenses choke your already-gasping profit margins, you're not alone. Many entrepreneurs have been waiting and watching for cues from their industries and larger retailers and manufacturers to see whether the variable price increases would actually stick.

It appears they will. The Consumer Price Index, put out by the Department of Labor, rose steadily before flattening out, as oil prices leveled off heading into summer. This indicates that as long as oil and health-care costs continue to rise or stay level, companies are finally committing to increased prices. And small outfits, which often lag behind larger ones, are getting comfortable with the idea of following suit. "A growing number of businesses are intending to or have already raised prices," says Stuart Hoffman, chief economist at PNC Financial in Pittsburgh, which conducts regular surveys of small and midsize businesses. In the company's February survey, 50 percent of respondents said they expected to raise prices. That figure grew 16 percent over fall 2004 and more than doubled over the previous year. "It's a sign of these businesses flexing their pricing muscle," says Hoffman.

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