I know, it’s crazy talk. Or is it?
Raise your prices when we might be facing a recession? But for some organizations, it’s just smart business. Or maybe it is necessary business. Cost of goods may be on the rise, or labor might be costing you more.
Or you might know/believe that consumers respond differently to higher end pricing than they do to lower priced items.
Whatever the reason, there’s a right way and a wrong way to raise your prices. The truth of the matter is in the life cycle of most businesses, prices need to be raised.
Whether you are a law firm that charges by the hour or a manufacturer who sells widgets – your cost of goods is likely to rise. So, your prices need to as well.
Raising prices can also raise the ire of your clients. Depending on the maturity of your business, your customer base, the percentage of increase you’d like to make – there are several ways to accomplish your goal without losing or upsetting clientele.
The most common way to raise prices is to just do it across the board and then send a sincere letter to your customers like "over the past 10 years, ABC Plumbing has worked hard to hold our prices steady. We’re proud of the fact that we’ll be able to contain our price increase to a very modest 2%…" Common, but not without some potential for push back.
Sometimes it is the most common way because it’s the only way. But, how else might you get the increase you want without incurring the wrath of existing customers?
How about charging extra for special privileges? Access to a customer hot-line that skips the on hold queue or upgrades in shipping or turnaround time. Today, one of the most valuable assets for most people is time. If you can save them time, they often will gladly pay extra.
Another way of looking at your pricing is market segments. A business traveler who needs to be in Pittsburgh on Wednesday and back on Thursday will pay more for a plane ticket than a Grandma planning a visit to her family. You probably have similar segments within your customer base.
No matter how you handle a price increase, one element is critical. Be upfront and demonstrate value. Your clients don’t begrudge you making a profit. They just want to get a value for their dollar. Price increases can be a win/win if you think them through and handle them correctly.
Here’s some heartening news. Some research suggests that people like you better if you’re more expensive!
Should you lower your prices during a recession?
What does this pricing strategy say to you?
How much is a house?
Raising prices can get sticky pretty quickly if your don’t handle it with care.
It seems to me that the companies who have the most trouble and resistance with raising prices, are the same ones that have made competitive price one of their key differentiators. When they get to a point where they must raise prices, customers see it as a failing to deliver and a broken promise, instead of a simple matter of inflation and economics.
Hi Drew, hi Chris
I think you’re spot on Chris, it is all down to perception: what does your prospect, client expect from you – so in which segment of a market have you placed yourself. If they expect lower or even the lowest price around, you’ll must first try to change the segment – double hard work!
Drew, another idea to keep clients when you have to increase prices is an extra add-on: valuable in the client’s eye but low cots for you: like our 4-seasons guarantee on labour. Or free advice for DIY-ers after they bought a wood floor from us – we’re only 1 phone call away.
Karin H. (Keep It Simple Sweetheart, specially in business)
Here’s a quote a came across today and it made me think of this post.
“What we obtain to cheap, we esteem to lightly.” – Thomas Paine
Or how about:
“The bitter taste of poor quality remains long after the sweet taste of a low price is forgotten”
A few years back I was having trouble selling our services. It wasn’t that our value proposition was bad or our positioning was wrong. It was that our pricing was too low. Strangely enough, I almost doubled our rates and the projects started coming in.
The lesson I learned — don’t undervalue what you do or your clients will too.
An interesting point. It reminds us that price is a pretty shaky brand position.
Yes….adding something of perceived value definitely softens the blow of a price increase.
And I think most businesses assume that their value add offer will actually not be used all that often. Do you find that’s true in your case?
So true. We know it, but boy is it scary to act on it. Check out what Gavin says a few comments down.
Another reminder of why price is not a smart brand position. It’s not enough. Consumers will pay a reasonable amount of money for quality. They won’t keep paying low prices for junk or bad service.
“The lesson I learned — don’t undervalue what you do or your clients will too.”
This arrived in my inbox at precisely the perfect time. I am self employed and working in the tourism sector. Since I started up on my own, I have always given my ‘bread and butter’ clients a better hourly deal than my ad hoc’s (I now know it is a crazily scary better hourly deal – as they are the most demanding in terms of time. Oops)and basically have been wondering how to put it to them that the more I do for them, the more costly it is to me!! Hence … I have proposed a fair increase on rates for the originally contracted hours, BUT anything additional has to come in at premium.. because guess what – I am absolutely worth it!! Hope it works – will let you know!
By all means…come on back and let us know how you handled it and how the clients took it.