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How to Address Price Increases for Products or Services with Customers

How to address price increases

Nothing lasts forever. This is true in business as it is in life, and at some point, you may need to raise your prices to keep up with costs and turn a profit at the end of the year. 

Many of your customers will understand these increases. Some will not. By approaching this topic carefully, you can soften the blow and keep as many customers as possible on your side. 

Let’s look at some strategies for addressing price increases in a way that will win more friends than enemies. 

Start with a Good Reason for Increasing Prices

Before you send out a message telling your customers of a price increase, it’s important to have clarity on why prices need to go up. It will help you if you can clearly justify it. It will be easier to craft an authentic message to your customer base when everyone in the organization knows why prices need to increase.

It’s not enough for one person or one department to understand the need for pricing changes. Everyone should be in the loop, as spreading that information throughout the organization will ensure the messaging is consistent from top to bottom. If a customer asks their sales rep why prices are higher, they should get the same answer that they would get directly from the owner. 

Some common reasons for price increases are as follows –

Start with a good reason
  • Labor costs. Rising payroll expenses are a common reason for needing to raise prices. Whether it’s a local minimum wage law increase, or market pressures that create the need to elevate salaries, that money has to come from somewhere. As we’ll talk about in more detail later, raising your prices to account for higher labor costs can easily be presented to your customers in an understandable, sympathetic manner. 
  • Material prices. If you sell physical goods, you’ll need to purchase raw materials to create those products. The prices of those materials are sure to gradually climb, along with everything else, so your sale price to the customer will need to consistently be adjusted to stay in line with the cost of the inputs. While this concept is easy enough to explain and understand, you don’t want to go into too much detail, for the risk of providing your customers with too much insight into your business and its financial condition. Speaking generally about increasing material costs without giving away the specifics will be your best course of action. 
  • Transportation expenses. Rising freight costs, which are often associated with rising fuel prices, can be another reason that your prices will need to move higher. This is a pretty easy factor to explain to your customers, as it can be presented in black-and-white terms. It’s not only a matter of shipping the finished product to the end user, but also moving goods around from one place to another in the manufacturing or production process. 

You should start planning your messaging as soon as you start talking about raising prices. Those two activities should be one and the same, as raising prices without good messaging is a recipe for disaster. 

Always Communicate Directly with Your Customers

You don’t want customers to find out about price hikes from a third party, or through rumors. Transparency is the name of the game in this situation. The reputation of your business is one of its most important assets and maintaining that reputation is going to be difficult if customers feel you are being deceptive about a price hike. 

There is a good chance that some of your customers know each other, and will communicate about business operations regularly. Imagine if a member of your sales team casually mentions something about an upcoming price hike to one customer, and then that customer talks about it with another. That would not be a good look for your business, and your trustworthiness would be reduced in the mind of the second customer. Keep a tight lid on this information until it is going to be communicated directly with all customers at the same time. 

Clearly Lay Out Your Reasons 

The communication that you send out to your customers should not only announce the price increase, but it should also explain the underlying reason (or reasons) for the change. As you craft the message, aim to be direct and transparent without providing more information than what is necessary. 

For example, imagine that you are raising prices due to a combination of increasing labor costs and higher materials prices. You’ll want to note both of those things in your message, but you don’t need to assign numbers or specifics to either one. Avoid saying that your labor costs have gone up by 10% and materials have gone up by 5%, thus your prices need to change. Just point to those two categories of expenses as increasing costs for your business and leave it at that. 

For labor costs, be sure to frame the messaging in a way that highlights how you are “investing” in the business by paying the right people to do the work at a high level. Producing the best products requires retaining the best employees, and you want to compensate your team in a manner that is aligned with their performance. Most people will appreciate the idea of paying your employees fairly and that concept could help soften the blow of higher prices.

Put Time on Your Side

A price hike is not something that you want to spring on your customers at the last minute. The right amount of time to allow between providing this notice and actually changing your prices will depend on the industry, the type of customers you serve, and the dollar amounts in play. The more expensive your items, the more notice you should aim to provide. 

Announcing your future price changes as soon as possible delivers a couple of benefits for your business. First, it makes it less likely that word is going to slip out before the official announcement – the longer you wait, the greater the chances that someone is going to talk about it outside the organization.

Put time on your side

Also, you might enjoy a boost in sales at the current price in the meantime. Some customers will jump at the chance to lock in another purchase or two at a lower price, so that could help your performance in the short term. 

Establish an Open Line of Communication

There are going to be questions – and complaints – that come along with announcing a price hike. That’s just part of the process, and you need to be prepared to deal with those incoming requests. Be sure to include a preferred means of communication with your notice so customers can easily contact you to get the information they need. 

Setting up a dedicated email address for this purpose could be a useful strategy, especially if you are expecting a lot of questions. Alternatively, you could provide the email address of a manager (or even the owner) who is willing and able to directly answer queries. It’s best if the person fielding these questions is a decision-maker in the organization and someone who will be authorized to speak on the matter with authority. 

Set a Firm Date to Make the Change

There should be nothing ambiguous about your price change. Not only should you tell customers exactly what the new price or prices will be, but you should clearly state when that new price will go into effect. This is one of the key points in executing a price change successfully and with minimal complications. 

If possible, make the date one so that it is easy to remember. Perhaps the easiest option of all is to make the price change go into effect on the first day of the next year. If that doesn’t make sense for your business, try to pick the first day of a month, so customers will have no trouble remembering when it is happening and they’ll have a clear line for getting in any remaining orders at the lower price. 

For businesses that sell goods and services online, be sure the tech side of the process is organized and will be updated at exactly the right time to reflect the new price. You don’t want the prices on your website to be out of date – even for a day or two – as this will cause confusion and frustration with your customers. Have your IT team set the prices on the website to update at precisely the same time that you have announced for the price change and you should be able to avoid any unnecessary headaches. 

Consider Offering Existing Customers a Deal or Discount

You will almost certainly have some customers who want to put through orders before the price change goes into effect. That’s a good start, but you could also think about extending an offer to some or all of your existing customers to lock in their rate before the prices go higher moving forward. 

For example, if you run a business that charges customers a set monthly rate for the products or services that you deliver, consider locking in their monthly rate at the current level and only raising the price for anyone new that comes into the fold. This might not be financially feasible in your situation, so you’ll need to carefully run the numbers before deciding what’s best. 

As a middle ground on this strategy, you could raise the prices for existing customers less than you are going to raise them for new customers. Showing loyalty in this way is another option for winning favor with your customer base and limiting how many of them look around for other options in the market. Even if you can only offer modified pricing for another 12 months before everyone will have to pay the same rate, at least you have extended an olive branch and demonstrated that you appreciate their ongoing support in a tangible way. 

Existing customers deal

Delivering bad news is never easy. No one is going to be happy about paying more for your products or services, but you can help them understand by being honest, open, and direct. Spend time working on your messaging with help from this guide and you should come out on the other side with most of your customer base intact. 

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kelly Brown
About Kelly Brown:

Kelly Brown has 25+ years of experience leading entrepreneurial organizations. As Managing Partner and CEO of Sanctuary, Kelly has had the opportunity to serve a leadership role in every functional division of the organization.

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