The dreaded price increase…how do you go about it? We’ve compiled our top tips on how to increase your prices based on experiences from our three businesses.
As well as running Tend and My Food Bag, we provide limited mentoring to two start-ups. At a recent meeting with one of our mentee businesses, the topic of raising prices came up.
The (service-based) business we were meeting with have been in business for roughly 18 months, and have a clearer idea of the value of their services and who they should be targeting. Simply put, they knew they needed to put their prices up but felt uncomfortable telling their clients just that.
The idea of putting the prices up on clients that had initially supported them was something which was hard for them to reconcile. E.g. trying to maintain the client relationship but not being able to do this off the current rate.
So how do you increase pricing while retaining clients? The answer is with consideration, communication, and strategy.
The truth is that when you first start out, price point is tricky to set. And let’s face it – you have no history of success so often people are giving you an opportunity while getting a discount in return. In addition to this, competitor’s price points are often hard to find, which adds a layer of difficulty when determining pricing and market position early on.
How to Increase Your Prices
- Consider the impact for the client
Your client or customer will likely have a budget that is nicely tailored around your current pricing. If your product or service is B2B, your pricing increase could potentially change their budget, which undoubtedly took a significant amount of time and effort.
Alterations to an approved budget could potentially cause friction for the client within their business. If you operate on a B2C basis, their household budget could be impacted. Use this information to tailor a sensitive approach and consider how time can be a lever in this instance.
- Avoid calling it a “price increase”
The first rule of a price increase is to avoid calling it a price increase. This term has immediate negative connotations, and is guaranteed to evoke an instantaneous defensive response. Instead, call it an “adjustment to current pricing” or “price review” (if you’re indeed intending to do a review).
- Regular small increases are better than irregular large increases
As the title says – it is better to provide small incremental price increases rather than infrequent large price increases. Having some price elasticity also demonstrates a strong underpinning customer base who are prepared to pay for your services!
- Be strategic with your timing
Timing is everything, and choosing the ‘when’ is equally as important as the ‘how’ when increasing your prices. For instance, is the client currently undergoing a restructure or budget cuts? Is your target industry or consumer currently experiencing a widespread revenue decrease? If so, raising your prices will probably not go down well.
- Don’t catch the client off-guard
Nobody enjoys an unpleasant surprise, and simply dropping the price bombshell in a meeting with no forewarning is likely to elicit a negative response. It is therefore good practice to add a pricing adjustment to the meeting agenda that you send out pre-meeting . How far in advance you send this depends on how much time you want to give the client to mull it over. In some instances, three hours in advance is sufficient. If you know this change is going to cause a particularly heated response, send the agenda three days prior in order to allow them to cool off a little before you meet.
- Base your delivery method on your relationship with the client
If you regularly meet in person or over a call, discuss the pricing adjustment at your next scheduled catch up. For clients with whom you don’t have regular meetings, arrange the conversation at a time when you have other good news to discuss (see tip no.5). Alternatively, if you only ever communicate with your client-base over email, stick to this method.
- Pair your announcement with good news
“Bad” news is always more palatable when served with a side of positivity. Show your client what you have achieved for them and/or communicate the added benefits you will be bringing to them before you mention the change in pricing.
- Be very clear as to the reason for the increase
Where possible endeavour to be transparent. E.g. Why are you raising your prices? Is it so you can deliver a better product or provide additional benefits to your customers? Is it because your supplier has raised their prices? Where possible, try to be transparent.
If the reason you are increasing your prices is because you have been offering your product or service at a discounted rate, make this clear, and work with them to gradually increase pricing. For example:
“We’ve been offering our services to you at a discounted rate, however now that as a business is getting bigger, we are going to need to incrementally adjust prices to bring you more in line with our other clients.”
What if you know a client won’t be able to afford the increased pricing?
Sometimes, at the beginning of a business, people buy in for a highly reduced rate, and simply do not have the budget to afford your new pricing. No matter whether or not you think the client can afford it, it’s important to still offer them the option of a gradual transition to the new pricing. If they are unable to do this, provide an option for a gentle off-boarding over the next 2-4 weeks. New Zealand is a small place, so treat every off-boarding client with as much enthusiasm and respect as you would an onboarding one. The small start-up that can’t afford your product or service today could one day become your largest account if the relationship is maintained.
We hope you feel more confident in knowing how to increase your prices as a business after reading this blog. If you’d like to see more from the Robinson Duo, you can see our other blogs and follow us on Facebook and Instagram for more business tips and insight.
