Every business has to raise its prices at some point. And if you provide genuine value, and the hikes aren’t too steep then your customers may not notice, or care too much.
But for many business owners, particularly in competitive industries, raising your prices can be tricky. If you are in the business-to-business (B2B) sector, and provide services to clients on a regular basis, it can be especially difficult, since you’re probably going to need to be upfront about your price changes and possibly renegotiate a new contract.
But market fluctuations, the cost of inventory, and so many other variables mean raising your prices is inevitable. So what’s the best way to handle raising your prices, without losing your customers? Here are some tips:
Business planning is not a one-time exercise by any means, a plan that is revisited quarterly can help guide your vision for your business but it can also help you ensure you are pricing your products and services appropriately. Do this by including a pricing strategy in your business plan. Take into account all the factors that influence how you price your products or services such as market forces, wholesale prices, competitive pressures, and other cost-of-doing-business expenses. A pricing strategy that is revisited monthly or quarterly can also help you better manage cash flow and profits because you should be able to proactively predict when you need to make a rate adjustment, instead of waiting until it’s too late.
If you don’t think your customers can stomach a direct price hike, consider restructuring how you package and price your services instead. Here are some ways to do this:
If you operate a service-based business or are a freelancer/consultant, successful price renegotiations often come down to client satisfaction and the value placed on the relationship. If you are 100% confident in the value of your services then it’s likely that your clients are too and are fully expecting to renegotiate your rate at some point in time. If you plan on raising your rates in the new year, engage the client in November – this gives them enough time to review your proposed rate, negotiate, and plan accordingly.
While you may have to explain why you are raising your prices, it is your right to do so. Don’t forget to explain your price increase in light of positive factors (don’t just blame the cost of doing business) such as the value you deliver, your commitment to your customers and your business, and be sure to mention any investments you have made in yourself (such as training) or your business that justifies the investment. Finally, be prepared to negotiate and reach a compromise that you and your client can agree on (especially true for B2B’ers). Ask yourself how low are you willing to go? What is the ideal mid-point at which you’d be happy to accept a negotiated rate?
What price raising strategies have worked for you? Please leave a comment below.