Sometimes you simply need to raise rates to keep your business viable. Many businessesworry about raising prices because they fear customers will leave them, it is a real fear and is often based upon past experiences. However, when you face increases in operating costs, raw materials, labor expenses and so on, at some point you may have to raise prices. This isn’t for purposes of gauging customers or skimming bigger profits–it’s a matter of survival. But survival means getting it right, though, so you need to keep up your volume of sales– avoiding a customer exodus — while using a price increase to sustain the necessary margin.
When you think it is time to raise your rates, use these five strategies to avoid a customer exodus and/or backlash and your reputation.
- Avoid ‘Death by a Thousand Cuts’
If you have decided that you need to raise rates, set a rate that you can live with for as long as possible. Customers can deal better with a rate increase if they know that it will hold steady for a while. When you make frequent little increases, you create uncertainty–and that has more adverse consequences than a single large raise that customers can plan around. - Offer Short, Clear Explanations
When explaining a rate increase to customers, make certain that you have a short, straightforward, and common-sense explanation. You and your team will be asked, so be prepared, and make certain that everyone has the right and same answer. It may be about the increased rate in health insurance for your employees; maybe raw materials have increased in price, or you’re getting hit hard by fluctuations in shipping and or supplier rates. Just know how to explain your reason. - Play Favourites
Personally contact some of your most important customers–those who are larger or more strategic, or both and explain the changes coming. It’s a mistake to let them get the news through an email or a salesperson. A price increase, even if understandable, is still going to be seen as bad news, so it should be communicated effectively from one executive to the other, not by front-line people. - When Possible, Offer Options
Sometimes you can change service agreements or performance clauses, and even product features to offer some rate increase relief. If these options are available to you, you should consider opening the conversation. When “nice to have” bumps up against “need to have” with a price tradeoff, customers often change their definition of what they do in fact “need to have.”
5. Manage the Internal Drama
The employees who have the greatest amount of daily contact with your customers will hear the most feedback about any rate increases and may have already faced regular pressure to keep rates stable, so now, when they are asked to pass along a price increase, they might just slightly freak out. Don’t ignore this internal drama, instead, manage with your first and best explanation for your own team. Your people need to understand the issues, the tradeoffs you considered, and the message. There’s just one thing you cannot do: Tell them one story and then ask them to tell customers something different. You need to have one single explanation that is true.
Rate increases are a reality for many businesses, but with a plan you can keep your customers, your staff and keep your margins.
