What You Need to Know About Price Increases
How to Increase Your Prices Without Alienating Your Customers
Whether you’re buying a car or a burrito, the prices of goods are rising as demand outpaces supply. Industrial companies everywhere are having a hard time getting their hands on the supplies that were once easy to come by, and when they are able to find them, the price is higher than ever.
You can’t keep charging the same price when the cost to produce is increasing. If costs go up, so must the price (if you want to stay in business, that is).
Yet even though everyone knows the above statement to be true, no salesperson wants to have the conversation with their customers about increasing the price they charge.
In this article, we’ll reveal the price increase formula that helped a mid-market manufacturer secure 100% approval for their recent price increase. Read on to see how you can do it, too.
Determine What Will Increase in Price
Before you can effectively communicate a price increase, you need to determine which products and services need an increase in price. Your team is probably seeing trends in your business of costs going up, but you need to have all of this outlined so you can effectively communicate about the increase. This is a great first step that will make the rest of the process much easier.
When setting prices, keep in mind that prices will continue to go up, so this increase is an investment in future costs. You don’t want to have to come back to your customers every month with another change, so think ahead when determining new prices.
Create Talking Points
Once you know how much you’ll be increasing the prices by, build out some talking points so there’s a single source of truth regarding what is changing.
This is a good opportunity to outline why the price increase is happening and what you have done in the past to avoid it. Remember, this is going to be hard for your customer to hear, so this is a good place to have the “we get it, this sucks” conversation and build empathy with your customer. Keep in mind that they’ll have to give this information to their boss and customers, so you want them to be well-equipped with data and talking points to make that conversation a little easier.
The formula we’ve used successfully is:
Current cost increase + Future investments = Price increase
Current costs = cost of labor, supplies, technology, government regulations, and past investments to reduce price
Future investments = cost of training, compliance, machining, quality, automation, insurance, benefits, and people costs
Then when communicating the increase be sure to outline all the steps you have taken to avoid a price increase and how long you have been working to avoid making this decision. You need to show that you have exhausted all options, but now you are reaching the point where you have to raise the price. Customers will balk and some may walk, while others will understand and your business will be better for it.
Build a Communication Plan
Who needs to know about the price increase? The obvious answer is “the customer,” but your internal team needs to be aware, as well. They’re the ones fielding the phone calls and emails. It’s important that everyone within your organization is on the same page: they know what is changing, why it’s changing, and when the change will happen.
This might not seem like marketing, but it really is! Every time someone has an experience with your business, it affects your brand. We want to make sure that everyone, internal and external, has an experience that represents your company well.
Your communication plan should outline:
- Who you’re communicating with (employees, customers, etc.)
- What they need to know (talking points)
- How you’ll communicate with them (email, phone, in-person, etc.)
Prices are going to continue to increase across industries, but we hope this helps you develop a communication strategy that will make this process easier (and a little less uncomfortable) for your team.
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