How to Implement a Price Rise Effectively
Posted on 13th July 2022 at 12:28
Price increases - an uncomfortable topic for many of us, especially in conversation with existing clients.
Why risk recurring revenue, customer satisfaction and a good sales pitch for a very small percentage more on your top line?
A small change on your top line can make a large difference on your bottom line profits. Charging more doesn't increase your costs, neither cost of sales nor overheads - so it ends up going straight on the bottom line...or off it if you drop your price. What this means is that a 10% increase in price could potentially double your profits (depending on your particular margins).
We are all facing increasing costs at the moment and we need to watch out for our cost of sales increasing - because again even a small increase could make a big impact on our profits.
The truth is, its a necessity and it isn't offputting to most consumers. Inflation, production cost, fuel prices, market positioning, planning for the future and simply wanting to make more money are all perfectly valid reasons to raise the prices of your product or service. Consumers are no different, they may get inflationary salary increases and are probably witness to similar situations in their businesses.
Without implementing price rises your business will most likely fail in the end. It is important, however, to make sure that you implement your price rises effictively and efficiently. There are many tactics in which to make the transition smooth for existing clients and retain your value in the market for new clients. The first priority is, of course, on your existing clients, your recurring revenue. Your bread and butter, the people who you owe so much to for making your business dream a reality, the people who you spent time, money and energy getting through the door.
A client that has been with you for a long period of time is unlikely to go through the trouble of leaving you and looking elsewhere over what to them is a small price increase (obviously it helps greatly if your product/service has a USP and your customer service is exceptional).
There are a number of strategies to implement price rises well. The first and most important is to be forward and transparent about the changes. Make an announcement. Tell your clients why it is that you are charging them more and what they should expect with any changes to your product/service. Another is to give adequate notice periods, you do not want your valued client to have any surprises when it comes to fees or prices. They will not trust your reasoning if it feels like a spur-of-the-moment decision. Making your price increases anual and therefore expected may work for some business (depending on your product/service) to ensure that your clients are well informed and that you make more money.
It might also be worth considering the marketing for your now slightly more expensive product, especially if you are not implementing a flat price increase accross your product range. If your price increase changes your marketing position than you should adapt your activity accordingly, if you don't you may lose value and marketshare.
As an SME you should always be increasing the skills of your employees and building your value. Doing this effectively will naturally help sponge any backlash for price increase and help you reach your ultimate goal of scaling your business.
For more on implementing price increases listen to BizSmart's Kevin Brent and Louise Blunt discussion on the topic here.
To see how BizSmart can help your business to scale up and ultimately make more money get in touch with us here.
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