It’s more expensive to do business now than it was a couple years ago. But despite the hikes we’ve experienced in the cost of doing business, few of us have felt comfortable going to our customers with price increases. As a result, we’ve seen our profit margins continue to decrease. It’s time to reverse the wheel, and get our profits trending back in the right direction – by increasing our prices while maintaining customer satisfaction.
Our cost of doing business seemed steady during the recession. Interestingly, nearly all of our suppliers held the line on prices. Like us, they were fighting to stay in business and couldn’t afford the risk of losing customers to price increases. In the past year, however, virtually every one of our suppliers has raised prices at least once; some have done so two or three times. Likewise, labor costs also have increased substantially.
All of these cost increases beg the question: Why are we willing to increase our costs of doing business but reluctant to raise prices for our customers? I believe that during the recession, a lot of us experienced a shift in our relationship with our key customers. Suddenly, customers were much more concerned about pricing than ever before. Quality and service took a back seat to the need to get pricing as low as possible. Jobs you would have never lost to an inferior competitor sometimes slipped away solely based on price.
As a result, now might be a great time to have a discussion with your key customers about pricing. A successful strategy for this particular conversation should include a few important aspects.
First, be sure that you’re providing significant value to your customers before you approach them. The ability to sit down and discuss pricing increases correlates directly with your company’s capacity to provide “value-added services” to your customers. It doesn’t really matter if your initial relationship with a customer began based on pricing.
“Why are we willing to increase our costs of doing Business but won't raise prices for our customers?”
If you have since managed to establish the kind of relationship in which your customers rely upon you as a key partner in managing their business, then a conversation about price increases will always have a greater chance at success.
Second, be very open and honest when explaining your increased costs. Walk through details of your cost increases, particularly materials that are used in producing their products. Discuss labor increases that you have absorbed, explaining that you need great people to help service their account. Most clients will be able to identify with these types of cost increases since they have been experiencing the same struggles in their own businesses.
Finally, its important to focus on establishing a customer-vendor relationship that will serve both parties for the long term. Make sure they know that the pricing conversation is not about the next job coming into the shop. This is about you and your customer doing business together for several years to come, and in order to do that, both companies need to ensure that the relationship is mutually profitable.