How to Effectively Increase Your Prices

We’ve all experienced price increases as a customer. The examples are extremely numerous. How about the ever-changing and completely random and unannounced gas prices? And what about the sneaky way food companies have decreased the package sizing on many food items and kept the price the same – like ice cream, pizza, cheese, and cereal. So the first step, as a business owner, is to ask yourself “do I want to treat my customers the way these large corporations treat me as a consumer?” I think your answer will be the same as mine…No.

So how do you effectively increase your prices without treating your customers like nameless, faceless consumers? The first step is to strategize how you’re going to create the most value for your customers along with the price increase. And then you want to plan the most appropriate timing for your price increase. There are quite a few ways to implement a price change each with its own benefits and challenges.

  • One Large Price Increase: sometimes circumstances warrant one large price increase. An example is if you’ve been in business for a while and have many long-time customers, and you have not changed your prices for a very long time. This is works especially well if the industry as a whole has overall higher pricing. In this case, you have built high value for your customers over time, and most likely your costs have increased over time as well.
  • Small Price Increase with the Same Value: in this case, you may have experienced an increase in your costs, and you already have proven high value to your customers. You can introduce a small price increase that is justified by the cost increase and be specific letting your customers know that the high value will continue. This type of increase can be used to bring your prices in line with industry-wide increases instead of one large price increase if you feel this will be more readily accepted by your customers. You can also plan several small price increases over a long period of time to catch up your prices to the industry standards such as over a period of years, but you need to ensure that your value to your customer remains constant or increases as well.
  • Increase Price & Increase Value: if you have increased the value of products and services that you have offered over time without increasing your prices, you can offer this explanation as justification for increased prices. If you’re customers have been with you through this type of growth and value creation, they will most likely wonder why you hadn’t increased your prices sooner.
  • Layered Prices & Increase Value: using this technique you would keep the price and value the same for your original products and services, and create an additional layer of premier or specialized products and services that add increased value to your customers. Theses premier products and services would be priced higher than the original, but will over-deliver in customer value. You can also incorporate a time-limited special offer to your long-time customers with a discount price to allow them the option to move to the new products and services that offer the higher value.
  • Price Structure Change & Increase Value: in this option, you have an original pricing structure and you are moving to a different pricing structure. Using this option can greatly increase your profit margin over time, however, you have to emphasize the increase in value and benefits to the customer so that you provide an irresistible drive for the new pricing structure. A good example of this is to change from an hourly consulting fee to a project fee. The benefits to the customer would be that they are getting all the same services and quality with one set price that is actually lower than the hourly fees. This change is beneficial to you since you can provide the same services, but your costs go down as you improve your internal operational efficiencies.
  • Specialized Products & Services Bundled with Existing Products & Services: to implement this structure, you offer the same products at the existing rates, however you add offers at a higher price that bundle the existing products with additional products that are specialized and geared towards specific customers. For example, you own an air conditioning company, and you have regular customers that pay for semi-annual air conditioning maintenance at a standard price. You most likely also find issues during the maintenance that need service such as replacing UV bulbs. You can offer those customers a special annual price for semi-annual maintenance that would include the maintenance twice a year plus replacing the UV bulbs once a year. This price would be less than the cost of the normal service call and replacement of the bulbs, but still provide a reasonable profit margin for you. And it would save the time and effort of writing proposals for the UV bulb replacement, it would put the bulb replacement on a regular schedule, and would allow for just-in-time inventory ordering of the UV bulbs which would reduce your inventory costs. Plus the customer’s perceived value for the regular additional specialized maintenance would provide a higher level of customer experience and care.

Timing is key to all of the various types of price increases. It’s best to study your monthly sales and revenues and find the time of highest demand. If you introduce your changes shortly before the times of highest demand, customers are more likely to accept the increase. But if you introduce your changes at times of lowest demand, customers may decide they need to get bids from other companies or change companies all together.

So how do you present all this to your customers to keep your relationships in the best condition? First, you want to thank your customers for their continue patronage and support for your business throughout the years. If you can individualize the announcements to each customer, that is always an extra classy touch that will add to your customer’s trust and belief in your company. Additionally, you want to be completely honest in your explanation of the pricing, value, and structure change. If the changes are based on specific cost increases, state exactly what those increases are. If the changes are based on the increased value your company has offered over time, and you are moving towards the industry standard pricing, state that. You always want to announce the changes at least one month or more prior to the planned price change. It’s a good idea to offer a deal or special discounted price to your best long-time customers. You can even announce the changes to these customers in advance of the rest of your customers and the public, and allow a special timeframe for these customers to obtain discounted pricing on the changes.

The most important thing to remember is to approach your customers the way you want to be approached for a price increase. Do you want to buy from a company that incorporates a sneaky product size or quality decrease? Or do you want to be treated with respect and informed of the details and allowed to make a choice? Which do you think will build more loyal customers?

If it all seems like too much, let us help. Contact us at wowsuccessteam@gmail.com or visit us at WOWSuccessTeam.com.

Mahalo and much success,

Lynn Herkes
WOWSuccessTeam

 

References

How to Raise and Lower Your Prices. (2015). Retrieved from Entrepreneur: http://www.entrepreneur.com/article/66010

Michalowicz, M. (2014, August 21). 5 Tricks to Raising Your Prices Without Losing Clients. Retrieved from American Express Open Forum: https://www.americanexpress.com/us/small-business/openforum/articles/5-tricks-to-raising-your-prices-without-losing-clients/

Young Entrepreneur Council. (2013, October 14). 10 Ways to Raise Your Prices Without Losing Customers. Retrieved from Inc.com: http://www.inc.com/young-enterpreneur-council/10-ways-to-raise-your-prices-without-losing-customers.html

 

 

 

 

 

 

 

About Lynn Herkes

Lynn Herkes has over 26 years experience and education in customer service, production, process improvement, quality control, and engineering. She has a broad industry background including aerospace, tourism, travel, hotel, restaurant, property management, customer service, equestrian training, scuba instruction, business and project management, operations, and ownership.