Here’s how to determine your new price and how to introduce it without losing too many of your customers.
Perhaps it’s been a few years since you have assessed your pricing, or your cost of doing business has increased. Or even better, you’ve so expertly established your value in the marketplace that customers are willing to pay more for your goods or services. Regardless of your impetus for considering a price increase, begin by analyzing the following three factors:
1. Your costs and margins
Have you experienced a loss in margin? Has your cost of doing business increased? Consider the cost of supplies, transportation, and labor as well as overhead fees and marketing expenditures. If your costs have increased, you may need to raise prices to achieve the margins necessary to continue running a profitable business.
2. Your competitors
What are your competitors charging for similar products and services? If their offerings cost more, try to understand why. Additionally, think about how easily your customers could leave your business for an alternate provider. “A critical issue is alternatives in the marketplace for the existing customer base,” says Nigel Ravenhill, a marketing consultant with 20 years of start-up experience. If those alternatives are easily-obtained and priced more cheaply, you’ll need to be more meticulous in how you roll out of your new pricing.
3. Your unique value proposition
Financial metrics and competitive analysis aren’t the only things that should influence your pricing strategy. One of the most important factors is market perception. “Customers who value the brand are less likely to revolt due to an increase. Just look at technology leaders,” says Ravenhill. Perhaps customers are willing to pay more for your products or services because of their superior quality or your focus on customer service.
The key to rolling out higher prices
Once you’ve determined it’s time to raise your prices, you can devise the best strategy for doing so. Be sure to communicate clearly with your customers about any potential increase before it occurs. Explain the reasons behind the change, and emphasize the value of your product or service. Reference any new or recent added values, such as an additional feature, improved quality, a new level of service, or even more flexible payment terms. Additionally, emphasize the general ROI your business provides. “You might want to take a closer look at your affirmation and retention strategy,” advises Ravenhill. “What are you doing to remind them of the value you deliver?” Keep in mind that the person you’re communicating with may not be the one using your product or service, and thus may need to be reminded of your value proposition. “For example, if you sell a technical product, the CFO may have been involved in signing off on the original deal but be completely unaware of the true value,” he cautions.
You may also want to consider a tiered pricing model, in which existing customers can keep their current rates, at least for a set period of time. They’ll likely appreciate the gesture, as well as the cost savings.
