How to Safely Increase Your Prices
One of the most logical ways to combat the increase in your expenses and also raise your profit margins is to raise your prices. At PROTRADE United, we recommend it be part of either an annual or 6-month review of your business. Let’s face it most things in your business (and life) are increasing in price – and most likely will continue this way.
However, when raising prices, there can be an emotional barrier for many business owners. The fear of several ‘what if’ scenarios creeps in. These scenarios could be…Will I still win the work at the new price? What will other people (trades) think when they know what I am charging? Am I really worth it? And the list can go on. Yet, I have never met one business owner who, when they put their prices up has not said, “Gee, I could have or should have done this months ago”.
Let’s face facts. The increase in the expenses in your business, in particular, labour and materials is at least 4-5% per annum. Together with ongoing overheads such as insurance, electricity, rent, and other operating expenses, it makes sense to increase your prices by at least 5 to 10% per year. If you pride yourself in your work, and believe you are delivering value, then it is about time you also valued your experience and expertise.
So…below are some suggestions on how to safely increase your prices and keep your customers.
1) Plan your price increase in advance. Ideally this needs to be at the beginning of every calendar and/or financial year based on past expenses and future projections. Be honest with yourself first and then your customers about the reasons for your price increases without trying to hide them.
2) Communicate to regular customers. If you have regular customers (maintenance/service industry) communicate in advance that your prices will be increasing as of a certain date. Perhaps let them know that new customers will be given the updated pricing immediately. This is just common courtesy, and it also helps to continue the relationship and trust that you have built. In addition, you may wish to include a voucher that customer can use towards your services for future – as an incentive for repeat business.
3) Increase for new customer immediately. New customers who have not used your services before have nothing to relate to. Therefore, use the price increase immediately and reap the benefits for your business. Price increases need to be fair and reasonable. Smart customers will compare you and don’t mind paying a little extra for great service and value, or a major uniqueness. If it is too much of a difference to your competitors then this could be a challenge.
4) Add value. Ensure that you let your customers know the extra time and energy that you are putting into growing the professionalism of your business, the training and development you are doing for your team, and the skill sets that you are adding. If your customer see that you are progressing as a business, then they are more likely to continue to use your services.
5) Increase slowly and regularly. You are better to increase your prices every six months by a few percent than waiting for two years and increasing them by double digits. Small increases are easy to manage in your end and also for the customers as well.
All the best and if you have any questions, be in touch with the team at PROTRADE United.
Written by Jon Mailer. CEO and founder of PROTRADE United.