“How Do I Raise Prices Without Alienating My Customers?"

When Danny Friedman first meets a potential client, he does his best to avoid discussing price. The vice president of Northbrook, IL-based distributorship Added Incentives will sometimes mention that due to his high sales volume, he gets the best prices in the industry and passes those savings onto clients, but he doesn’t go into specifics. “That’s the last time I talk about it,” Friedman says. “Once you open Pandora’s negotiation box, it’s almost impossible to close it.”

Instead of focusing on price, Friedman talks about the value he brings: his experience, attention to detail and high level of customer service. By focusing on value, rather than price, at the infancy of a sales relationship, Friedman is able to avoid the teenage drama that sometimes comes with necessary price increases down the line. “I’m just upfront with clients and explain the situation,” he says. Friedman will note for clients whether the increase is due to fluctuations in the value of commodities like cotton, inflation or a supplier price hike. “If I’ve done a good job of building the relationship and not making price an issue, then an increase becomes just a matter of doing business.”

Friedman and other sales experts understand that marketing yourself on price alone is a losing proposition. For price-driven customers, any increase in costs could cause them to jump ship, but for wiser clients, who are conscious of price (yet still value quality and service more highly), the occasional cost increase is not calamitous. “Raising prices shouldn’t be a stress point,” says business consultant Michelle Dellavalle, owner of Dellavalle Counsel. “Everyone does it at some point, and when a brand’s identity is strong, a business should have no problem increasing fairly and retaining their customers – and even gaining new ones.”

When a price increase is necessary, don’t try to pull off a “stealth” hike, says Jerry Rackley, chief analyst at Demand Metric, an Oklahoma City-based marketing advisory firm. You don’t necessarily have to make a grand announcement about the increase, but expect your clientele to notice and be prepared to explain the reasoning behind it, he says. “A price increase is also a PR opportunity, so plan the communications well,” Rackley adds.

If you’re worried about how a particular customer will respond to your price increase, consider staggering the rollout of the new pricing structure accordingly, says Greg Chambers, an Omaha sales consultant and president of Chambers Pivot Industries. “New customers will accept price increases because, well, they don’t know any different,” Chambers says. “Your oldest customers may still have 2001 prices in their head. You can’t approach a price increase with them in the same way.”

Friedman agrees that it’s important to be strategic about price increases. Sometimes, it’s necessary to take a small hit to your profit margin if it means retaining a good client, as long as that remains the exception, not the norm. When Friedman is facing increased costs for a particular product, he’ll usually honor his original price in a given fiscal year, but the following year, he’ll raise his prices accordingly. “It’s not always easy,” he says, “but that’s the way I work with my clientele.” – Theresa Hegel

The Cost of Raising Prices

If you want to remain profitable, the occasional upward nudge to your pricing structure is inevitable. Here are a few more tips to help the change go smoothly.

  1. Take a “materials inventory.” Business consultant Michelle Dellavalle urges firms to review all their marketing materials, from brochures to websites to make sure listed prices are up to date.
  2. Explain the change. Rather than try to slip a price bump past clients, it’s better to have a straightforward explanation prepared, sales experts say. Most customers will understand the need for an increase if you are upfront with them.
  3. Show your value. As long as the value of your services is high, raising prices isn’t a problem, says Jerry Rackley of Demand Metric. “Businesses should create a culture and reinforce it with their communications that emphasizes value, not price,” he adds. “Businesses that do this well have some immunity to a price-increase backlash.” – TH