SOI 2015 – When to Raise Prices
Remain Profitable By Doing Regular Analysis
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Promo products companies can’t be afraid to increase prices – even at a time when some companies are slashing them.
It’s never an ideal situation to be put in or a fun conversation to have, but in order to remain profitable, distributors must sometimes raise the prices their clients pay for promotional products.
“The best determiner of that would be the financial health of your business and what your goals are in terms of profitability,” says Lorin Carlino, senior account manager at Creative Solutions (asi/170769). “If you’re making ends meet but you feel as though your output far exceeds what you’re bringing in, at that point it might be time to change your pricing structure.”
Business experts suggest that companies do a regular analysis of each customer’s profitability to ensure margins are meeting stated goals. “The longer a customer relationship lasts, the more costs and expenses tend to be incurred by the vendor,” says Janet Klesh, vice president of consulting firm Juke Consulting, based in Alexandria, VA. “You’ll be adding on costs that may not always be so obvious – like travel, communications, extra samples, T&E. These need to be accounted for when analyzing the profitability of every customer, and the prices you charge should be raised accordingly. Otherwise, you’ll be taking a hit on your real profit margins, not just gross profit margins.”
Who Should be Charged More?
As with any industry, there are great customers and difficult customers within the world of promotional products. When it comes to raising prices, Hadley Winslow, promotional consultant for Specialty Incentives (asi/331870), says the solution may be to separate the great customers from the not-so-great, and adjust your pricing accordingly.
“It depends on the client, really. You’ve got your clients that do a lot of volume and are easy to work with, and then you have some clients where it just takes a lot more time and work and energy to be able to get the orders done,” she says. “With clients that are doing reorder after reorder, they pay on time, they get the information over to you quickly and it’s a smooth process, then you want to give them the best pricing and reward them for being a consistent client. But for clients that go back and forth a lot, don’t approve their proofs, don’t pay on time, you need to charge them a little bit more for your services because you need to be paid for the additional work that you’re doing.”
There are times, however, when raising prices across the board is necessary, either due to falling profit margins or because your supplier partners have raised prices on their end.
As long as you’re providing better service than the other guys, Carlino says your existing clients will continue to turn to you – and prospective clients will also consider you – as long as you’re able to provide them with value beyond what the lower-priced competitors offer.
“That’s something we deal with a lot, especially with the Internet now. My clients don’t question my pricing that much, but I’ve had some who say, ‘I saw the same thing for 40 cents less,’” she says. “So, I say to them, ‘OK, if you have a problem with your order, who’s on the other end of that phone? And, if you need a favor on the next order, who is it that’s going to do that favor for you?’ You don’t want to be an apple in an apple-to-apple comparison; you want to set yourself apart.”
Carlino’s top value proposition is in keeping up with the latest retail trends in order to stay one step ahead of the lower-priced competition.
“We’re constantly scouring magazines and websites. We go to out-of-industry trade shows all the time. We go that extra mile to be at the forefront of our industry and to show them new retail items that they can buy. I think our clients value that, and I think they’re willing to pay a little more for our service,” she says.
The key when raising prices is to prove to clients that your services are more valuable than lower-cost providers. “You can’t just raise prices and expect to provide the same commodity as an online seller today,” Klesh says. “You have to prove that what you’re offering – either in products or ideas or customer service – can’t be found elsewhere for cheaper.”
That’s exactly how Carlino approaches her customer relationships. Earlier this year, she was able to set her business apart when a customer, a local radio affiliate, requested tote bags as a summer giveaway for agencies that bought ad space on the station.
“They said, ‘We’re not really seeing anything interesting. Some other vendors showed us just basic tote bags we’ve seen before,’” Carlino says.
Creative Solutions put together a striped custom beach tote with colored trim, adding a custom woven label on the inside instead of a large logo on the front of the bag. Carlino included a matching beach towel with each tote. “They initially were going to order 1,000 bags, but they ended up ordering 2,000 because they loved them so much,” she says. “That’s where I feel like we’ve really set ourselves apart from a lot of our competitors. That’s why our clients are so loyal to us and why it’s difficult to speak to the raising of prices, because it’s so rare that our client will question a price except for every once in a blue moon. They trust us, they respect us, and they’re willing to pay for our services as opposed to the services of another vendor.”
As long as you’ve been going that extra mile for your customers and remind them that you’ll continue to do so, Winslow says necessary price increases shouldn’t be a big deal.
“Have a conversation with them and say, ‘Hey, this price has changed, so we’re going to have to up your price a little bit,’ I really haven’t had much pushback on that,” she says. “Every once in a while you’ll run into the people who are price-shopping you on the Internet, and I think it’s really important then to point out the differences in the services that I offer versus the service you’re going to get from some random company on the Internet.”