When do I adjust my prices?
There are various reasons for raising your prices on a regular basis. For instance:
- your costs have increased;
- the quality of your services or products has improved;
- you want to earn more from selling your services or products.
There are also reasons for lowering your prices. For example, if your costs have decreased or if you want to attract more customers. You are not obliged to adjust your prices.
What is a price index?
A price index measures the average change in prices of a product or service over a certain period of time. An example: you want to compare the prices of products between 2015 and now. In this case, 2015 is called the base year. It always equals 100. If prices in 2019 have risen by 5% on average, the price index figure will be 105. In other words, there has been a price increase of 5% relative to 2015. CBS publishes various price indexes on StatLine. You can use these indexes as an indicator for calculating your price adjustments.
How do I calculate a price increase?
If you want to raise your prices on a yearly basis, you can take the following steps:
- Choose a price index that matches your product or service (for example, the Services Producer Price Index)
- Examine the year-to-year change of the most recent quarter
- Take this number as a guideline for your price increase (a year-to-year change equal to 3.0 implies an price increase of 3%)
If you want to raise your prices less often (for example, once every 5 years) or if your price has not been adjusted for a long period of time, you can take these steps:
- Choose a price index that matches your product or service (for example, the Services Producer Price Index)
- Observe if any changes occurred in the price index since your last price adjustment
- If so, take these changes as a guideline for your price increase
Example
If you want to calculate the relative change in price of your product or service, you need the current price index and the old price index. On StatLine you can find the index numbers relevant to your product or service. The old price index is the index number since your last price adjustment. If the new price index is 104.5 and the old price index is 95, then the price increase is 10%.
You can use the following formula to calculate the relative change in price:
((Price index new/ Price index old) x 100) - 100 = change in price in %
((104,5/95) x 100) - 100 = 10%
Which price index should I use?
The most frequently used CBS price index is the Consumer Price Index (CPI), because it incorporates the most relevant price increases. You can also use a combination of indexes (for example, goods and services). CBS recommends using the main category of a price index as the guideline for your price adjustments. You can also make a specific selection of goods, services or sectors within the price indexes on StatLine.
You may use the following indexes:
- Consumer Price Index (CPI) for products. The CPI is tool to measure inflation. The index demonstrates a price trend of a package of goods and services, such as daily groceries, clothing, gasoline, rent and insurance premiums.
- Services Producer Price Index (SPPI) for services. The index shows the price trend of services in the Netherlands.
- Hourly CAO (Collective Labour Agreement) wages including special payments. The index shows the average change in CAO wages in the Netherlands.
- Producer Price Index (PPI) for raw materials. The index shows the average price change in selling prices, import prices and industrial products.
Establishing and announcing a price increase
Communicate to your customers why and how you have adjusted your prices: it makes you appear more professional. You may choose to inform your customers by stating the price change in your general terms and conditions. If you want to raise your prices on a regularly basis, make sure to be transparent with your customers. For instance, always choose the same price index and period.
Do you want to include a price increase in a contract or agreement? CBS gives advice on how to clearly state your method of indexing in your contract. This includes:
- the name of the index;
- the moment of indexing;
- the period (month, quarter or year) to which the index number refers.
