Are you one of those business owners who won’t increase your prices until the creditors start baying for blood? When you do put the prices up do your knees start to tremble at the thought of telling your best customers?
Managing your pricing is a critical part of managing the financial health of your business. Pricing decisions should not be guided by fear. Here are some tips to help you make price changes with confidence.
Create or Review Your Pricing Strategy
A well thought through pricing strategy is your best tool for managing price changes. No customer likes to feel that you’ve pulled prices out of thin air, especially if those prices are going up. So your pricing strategy will help you to justify changes when required.
A good pricing strategy considers component costs, competitive environment, competitive positioning (i.e. are you positioning yourself as high service/high price or a cut-price alternative) and price elasticity (i.e. how much are your clients willing to pay before they will walk away). You also need to consider how you are going to structure your pricing. Do you charge on an hourly basis, on a quote by project basis, on a price list basis?
If you are feeling unsure about your pricing strategy then MJ Accountants or a good business coach will be able to help.
Explain Your Pricing Strategy
With every new client explain up front how your pricing works. Introduce the idea that prices are not fixed forever, by explaining when and how prices will change. For example, “We put our prices up on the first of July each year in line with CPI,” or “We monitor our costs and only increase prices when rising costs necessitate a change.”
If you are presenting a new strategy to existing clients the best approach is to be honest. Explain that you have reviewed your pricing, outline your new strategy and explain how this will impact on them.
Give Enough Notice
Don’t just change your prices overnight. Remember, your clients have their own cost management issues. As far in advance as possible signal that prices may be changing, and give at least 30 days notice when you do announce an increase.
Sweeten the Deal
If you are genuinely concerned about how your best customers will react, consider offering a value added service as a sweetener. For example: if you’re a web designer offer to review an existing site at no charge, or if you’re a business coach offer a complimentary session with another staff member.
Make sure it’s clearly a one-off. Ensure that your client understands that the price increase is necessary and you are only offering the sweetener because you value their business and want to help.
Speak with Confidence
A strategic price increase is nothing to be ashamed of. Explain your decision with confidence and remember that it’s in your clients’ best interests that you stay in business!