Even the most sales savvy among us have had to fight back the nerves that materialize whenever we are faced with telling a customer about a price increase. Talking about it never makes for an easy conversation.
When discussing a price increase in a business-to-business environment, it is important to remember that our customers have probably had to have the same discussion with their own customers. A company exists only as long as it earns a profit and it can only do that if it delivers a quality product or service at the right price. This means that the key to any conversation about raising the price is to emphasize that such an increase will ensure product quality.
As you begin to prepare your strategy for communicating a price increase, ask yourself the following questions:
1. Does the customer take your product/service and add a standard percentage increase in price when selling to their customers?
If this is the case, you can point out that your customer will make more money by taking a standard percentage of a higher amount.
2. What percentage of the customer’s business is your product/service?
If the percentage is small, tell them that the amount of increase is only a small percentage of their total business. If the percentage is great, then you can emphasize that the price increase is necessary to maintain the level of product quality necessary for them to serve their customers.
3. Has the customer faced any other price increases from other vendors?
If so, try to identify what some percentages of the other increases have been. If yours falls into the low end, then you can point out how your increase is comparatively smaller than that of many others. If your increase is at the high end, you can either explain how yours is the only one you expect to take or that you wouldn't be surprised to see others coming back to take another round of price increases.
4. How does the customer view you and the products/services you sell?
If you have a quality reputation and record, then you can emphasize that the increase has been carefully thought through and it is only being taken to ensure continued quality. If you have a spotty record with the customer, then you should stress how the price increase will allow you to begin addressing some of the issues in question by allowing you to improve the overall quality of service they have been receiving. Naturally, it is important to make sure all comments are backed with a commitment to follow-through.
5. Will the customer raise an issue with the price increase?
Be prepared to show documentation of how your costs have escalated and how other companies are experiencing the same increases. (An example is the increasing cost of oil, which has forced any company that uses petroleum in the manufacturing or transportation of goods to most likely increase prices.)
When having this discussion, be sure to show empathy for the customer, but remain firm in what you're saying. If the customer senses any hesitation on your part, they will likely try to exploit it in the form of a price concession from you.
Also, be prepared to share steps that your company has taken in an attempt to avoid a price increase. This can include ways you've already cut costs or how the price increase is the only way to maintain the quality and service the customer expects. A final point to emphasize is the time lag between this price increase and the previous increase. Having information available concerning the rate of inflation during that specific time period may also help diffuse the issue.
6. Why does the customer buy from you anyway?
Knowing this will allow you to reinforce these points when talking about the price increase. You should also have ready at least two key needs of the customer that your product or service satisfies. Be sure all of your strategic information about the customer is up-to-date before a price increase is announced.
7. How much business is at risk from the customer?
We can sometimes get carried away thinking that if we raise prices, we'll lose the customer, even though this is rarely the case. Think through what steps the customer would have to take to move to another vendor. Many times the work involved in moving is not worth the effort, and thus the business is less at risk than thought.
Now that you have a price increase strategy mapped out, let's have a look at actually presenting the price increase to your customers. On the next page, Mark Hunter presents tips for presenting a price increase.