Despite the weak economy, it is possible to raise prices if you are selective with your customers, start small, and increase prices gradually. Some of the same customers who would surely desert you if you raised prices too quickly will gradually accept small and infrequent price increases.
If your profitability is suffering due to price erosion, and your cost-cutting efforts aren’t keeping up, maybe you should consider raising prices. The following guidelines should help:
1. Be Selective
If you try to roll out an unimaginative, across-the-board price increase to every one of your customers, without regard to how profitable each customer is, you should be prepared for a negative response. You should also be prepared for the inevitable retreat from your new pricing to your old, with the results of no margin gain and hard feelings toward your company.
Instead, why not select the least profitable five to ten percent of your customers and increase prices only to them? You know who these customers are: they pay lower-than-average prices; they negotiate every item of every purchase order down to the last penny; they don’t pay on time; they demand better-than-average specifications and performance; they tie up a disproportionate share of your time; they demand that you dedicate more resources than they’re willing to pay for; they penalize you financially for the smallest mistake; they don’t help you design and test new products; they don’t provide testimonials or references; they aren’t loyal, and don’t seem to care who they buy from.
Some of these customers may refuse to pay higher prices, and may stop buying from your company. But others will grudgingly accept the increase and slowly become more profitable. And in the end, wouldn’t you really rather have a smaller but more profitable group of customers?
2. Start small
Imagine someone you buy from telling you that prices were going up by ten to twenty percent or more. No matter how logical the explanation for the increase, you would be unhappy. Your customers will feel the same way.
Instead, consider increasing prices by only two to four percent at a time. Increases in this range tend to be easy to accept, and some customers may not even complain at all.
3 Increase prices gradually
You can’t expect to reach your ideal pricing overnight. If you try, you’ll alienate your customers very quickly. Try implementing an increase every six months or so. You might not achieve your desired profit margins as soon as you’d like to, but in the long run, you’ll keep more of your customers.
4. While you’re at it, add up and point out services you currently provide for free
Doing this gradually paves the way for future price increases. Examples free services might include exceptionally fast delivery; shorter than average build times; live phone or web help; in-person technical expertise; performance improvement of existing products over and above the original specifications; field service support above and beyond what was included in the initial purchase price, warranty or specifications; after warranty support, and extended or more lenient payment terms.
Start the conversation by meeting with your customers, and talking about each of the services you’ve been providing. Gently let them know that it’s getting more difficult and expensive to provide the services at no charge. Share with your customers the range of fees you’re considering, and ask for their feedback. You may be surprised at how realistic and reasonable some customers are.
The take away: you can raise prices and get paid for services if you approach it in the right manner. Why not give it a try?