Managing the process of implementing a periodic price increase can be “harrowing”, but it should be a normal part business life. All too often though, we see increases deployed with mixed results.
The good news is there are steps you can take to ensure your price increase “sticks” and so do your customers. During the series, we will answer some of the most common questions on the topic.
We will share our experiences and suggest some smart moves to make, while warning you about a few dumb ones to avoid.
When is it ok to raise prices?
In general, anytime you can do so successfully. You perform quality work and should be paid according to your value. Never hesitate to have an internal discussion on the topic. You don’t have to approve an increase every time your team discusses it, but it is a healthy business practice to discuss increases on a regular basis.
Underlying assumption: Your company has decided to increase prices and now you must execute the increase successfully. Here goes:
First: Get your perspective right. Your business has to make money; and as long as it makes money… the business has options and a future. When you are ready to approach the client, be confident and fully professional. Don’t make excuses or seem sheepish. A price increase is often a business imperative. Truth be known, we don’t like to give them and our clients don’t like to receive them. But, as professionals, it is our job to implement increases and people are counting on you. So step 1 is to strengthen your mind and don’t look back.
Smart Pricing Move
“Steel your mind” with the knowledge that customers who threaten to leave over a price increase, tend to do so only 8-12% of the time. Clients know the cost of switching to a new supplier is expensive and risky.
Dumb Pricing Move
Go to the client meeting with thoughts of getting “any increase” because anything is better than nothing… dumb move. Establish what you need during the increase planning sessions and expect to get 100% of your target increase.
Planning For A Successful Price Increase
You shouldn’t attempt to raise prices without careful planning, and collaboration with your senior team. The stakes are high, so make certain there is a short, written brief that explains the basics. Circulate it internally to get sr. leadership feedback, and buy in, on your strategy and implementation plan.
The brief should cover at least these three points:
- Which products or customers get exactly what increase; and if implemented fully, what is the total financial value of the increase to your own company.
- The exact dates you intend to communicate the increases, to whom, and the main talking points.
- The third point you should cover in the brief is a list of customers that are likely to kick and scream about the increase. You must then, detail the nature of the revenue at risk. Keep it simple and provide a 1-2 paragraph overview on each potential screamer, detailing how you intend to respond if major concerns arise.
Smart Pricing Move
Give your client at least 30 days notice of an increase. Anything less is unprofessional and risks your reputation and credibility with the client. Also, they may need to make adjustments on their end because of the increase. On a related note, never try to slip an increase by the client hoping they will not notice. They always notice, and it will go poorly for you when they do.
Dumb Pricing Move
Counting on your charm and relationships to “smooth” the increase over instead of taking time to prepare. Instead, during the planning stage, secure any proof sources or related third party documents supporting the increase. Think material, fuel, shipping, labor increases, etc. You may not use or need them, but they will be helpful to have in your back pocket in case they try to negotiate.
Speaking of negotiation, while this series is about the proper process for planning and communicating a price increase. At MarketCrest, we believe that Sales and Marketing leaders can have a significant impact on a team’s win ratio by preparing for negotiations in a certain way. We will share our experiences and how we approach negotiations in a future series.
How to Communicate The Price Increase
You and your team have thoroughly discussed the increase and why it is important it be executed professionally and completely. Your “mind is right” and you are firmly committed to the task at hand. (Step 1…check)
You have invested time to write a small brief covering the nature of the increase and your plan for implementation. It has been circulated among sr. leadership to gain feedback and approval. (Step 2…check)
When it is time to implement the price increase you start with a smart move.
Smart Pricing Move
In all client discussions (written or verbal) you will be firm while still showing respect and appreciation for the situation and your relationship. You make no apologies or excuses, keeping a kind, but business mindset.
Smarter Still Pricing Move
You also document all the instances over the past year where you have: been their hero; held/matched lower prices; upgraded customer facing technology; beat your KPI’s; saved them money; or helped them avoid certain expenses entirely. Cost avoidance is often overlooked. Having this data at your disposal will be critical to providing a full view of your financial value.
Remember to calculate the total impact to the client BEFORE they can. You might find that although there is an increase, it might not impact their current year financials as much as they imagine.
Mega Smart Pricing Move
In addition to the first two moves, you add the absolute smartest possible move… you provide the client options. By helping them explore options, you are being part of the solution and a valued partner. The client could keep the product/services exactly as is, or select/design a less expensive version. In some cases, they could test some slightly more expensive options with potential to provide a greater ROI.
Be ready with samples so they can envision the possibilities. If you have anything else new or fresh to offer, now is the time to bring it up. You might consider offering a minor incentive to your client for giving something new a try.
Let’s stop and respond to another commonly asked question. When it is time to speak with the customer, should I go it alone, or bring help? If you expect significant pushback and want to increase your likelihood of success, bring one of the sr. executives. Executives are usually willing to make calls in the field, and often, they can increase your odds. Just remember to select someone you have made successful calls with in the past.
At this point, after presenting the price increase, you will either feel confident or very worried. If you are squirming in your chair, ask yourself if you did everything in your power to build exit barriers to your client leaving.
It is rare for a client to depart over a price increase, but strong sales and marketing leaders create solutions customized to their client’s business needs, in part to deter that option. Solutions customized to integrate into your client’s processes, render departing over a standard price increase, unreasonable.
Think special materials, staffing, programming, technology, processes, procedures, automation, reporting…all exit barriers that smart leaders put in place early and often. The relationship becomes a win/win and emotions stay in check during challenging discussions.
Several moons ago, a client worth $8 million a year to us, asked for a 25% decrease in price and had competitive bids promising nearly $2 million per year in savings. Using the approach we have discussed in this series, and a few more we will cover in future posts, we avoided discounting our prices, and we raised them. Yes…raised them plus extended our contract two years. Aim high.
If this series exposed some areas of opportunity for you and your team, remember: “If you want improved results, you have to change how you do things.” That core belief is what drives us to be process oriented when solving business issues. Have a great week.
For more tips on business or marketing consulting, visit MarketCrest’s Consulting page or request a fee consult.
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