You already know that good customer relations are vital to business success and longevity, so you pour time and energy into nurturing those relationships. While it’s wise and even admirable to focus on your customers’ needs and wants, you don’t want to do that at the expense of your bottom line.
If you’ve noticed your vendor costs increasing and your profits shrinking, or you need to make up for items you discovered were draining profits after performing a cost analysis, it’s time to increase your rates.
But won’t that alienate your customers? While it’s true that no customer loves paying higher prices, it is possible to raise your rates in a way that makes everyone happy. Read the tips below for increasing prices without losing customers, then leave a comment to tell me one new insight you learned!
Healthy Profits and Happy Customers
Last month, we unveiled the secret to uncovering your lost profits: figuring out exactly how much it costs you to provide each of your services. We established that maximizing profits can only happen when you start from a confident and clear cost analysis.
Now that you have an accurate picture of your costs, perhaps you’ve realized you’re not charging enough for some of your products or services. In order to make a healthy profit, you know what you need to do. You need to raise your prices. Does the thought of that make you squirm?
See if these sound familiar:
- Are you hesitant to raise your rates, afraid it might push away your customers?
- Are you unsure of the best way to do it so you don’t lose clients?
- Are you wondering when to do it for the least amount of pushback?
If any of these concerns are holding you back from raising your prices, know that you are not alone. Many business owners fear losing customers over price increases. However, this is something all businesses eventually have to do. If you don’t keep up with rising vendor costs and inflation, your profit margins will dwindle and eventually disappear.
The good news is there are ways to raise prices that will keep your clients happy and your profit margins healthy.
What’s the secret? First of all, timing is everything! Regular, incremental price increases are better than big, sporadic changes. They’re less of a shock to your customers and an easier adjustment for them. If you haven’t raised your prices in a while, you may need an initial hike, but plan to increase gradually after that. Consider this every year as you construct your annual budget, making sure to increase your prices as needed to provide a healthy profit margin over rising costs and inflation.
Not only is frequency important, but the time of year matters, as well. The best time to increase your prices is at the beginning of your industry’s natural business cycle, before the busiest time of the year. However, you also want to be sensitive to when your customers will be setting their annual budgets. Allowing them ample time to accommodate your new prices will make them far less likely to push back against the increase. If you don’t have a general sense of when they set their budgets, assume they follow the calendar year.
Once you’ve determined the how and when of your price increase, it’s time to communicate it to your customers. Gulp! Hopefully, if you’ve timed it right and your changes are small, the response should be fairly accepting. To smooth any ruffled feathers, however, position your products and services as well-worth the change in price. Center the majority of your communication around the value you provide, only briefly mentioning the price increase. Your customers will walk away happy, fully persuaded they’re still getting a great deal, and you’ll be able to set the rates you need to stay in business.
Are you a nonprofit and thinking this doesn’t apply to you? Think again! While most nonprofits don’t have customer pricing they need to raise, it is still important to know how much it costs you to provide your services to the public and tailor your donation requests to reflect those costs. When asking for donations, you can then ask for the value of one meal or the value of one night sleeping inside with warm blankets in the winter. Not only will you better cover your costs, directly linking donations to the services you provide increases donor engagement.
Costs of business are always increasing, which means you need to be regularly increasing your prices. Failing to do so will lead to quickly shrinking profits. Higher rates don’t have to lead to irate customers, however. Contrary to popular belief, positive customer relations and price increases can coexist. By implementing the strategies above, you’ll be able to protect your profit margins and keep your customers happy. Win-win.
Not sure what profit margin is reasonable for your industry? Need help figuring out what you need to charge to get there? I can help! Book a meeting, and let’s talk!