It’s inevitable. We all have to raise prices at some point in order to stay solvent. It’s also inevitable that we’re going to agonize over the decision, worrying about what the net effect on our business will be. Here are some tried and true strategies I’ve learned that make your prudent business decision even more effective.
1. Create a new label. Language is even more powerful than we realize, and if you’re using the standard, generic industry label for your product, then you’re going to have a harder time charging a premium price. When I owned my computer forensics business, “data imaging” was the term the industry used for retrieving and storing information from a computer. I wanted to differentiate my services from the rest of the pack – and I added some bells and whistles that the other guys didn’t, and I called my service “data encapsulation.” When you use a new term, you can get a client to ask “what does that mean?” That’s a huge opportunity – the chance to differentiate yourself from the crowd and justify your premium price.
2. Don’t charge by the hour. Think about it – if you charge by the hour, the better and more efficient you become in your field, the less money you make. Bad scenario. Charging by the project rewards efficiency, because as your skills and speed increase, you’re able to complete more projects, which makes you more money.
3. Packaging/bundling. I worked with a client on his business model, looking for a way to improve his profitability. His problem? He sold iPhones on eBay, and there’s no shortage of people who were doing exactly the same thing, and that inevitably drives prices down. Our solution? He created a DVD that shared insider secrets for the iPhone, and he included it with purchases of iPhones. He bundled his products, creating a unique package that no one else could offer, and he was able to raise his prices and improve profitability.
4. Just do it. Don’t beat yourself up; don’t lose sleep over your decision. Here’s a secret – your best customers will be surprised that you didn’t raise prices sooner because they value your work. It’s possible that you may lose a customer or two over your increase, but those clients who leave are likely to be your problem children anyway. Also – a tip on a hybrid method of increasing prices – depending on your business, you may be able to introduce a price increase for new customers only and see how it goes, before increasing prices for existing clients.
5. Explain. Robert Cialdini, in his groundbreaking book, Influence, illustrates the importance of explaining your actions by using an example of a woman in line at a library copy machine. If she simply asks to cut in line, sometimes she’s successful. If she asks to cut in line and explains that she’s in a hurry, she’s successful 94% of the time. In the absence of an explanation for your price increase, your customers will invent their own. They may speculate that you’re greedy and taking advantage of them. If you take to time to explain why you’ve increased prices, though, you’ll find that your customers will accept the change much more easily. Cite your increased expenses, your expanded staff, and your commitment to improve quality, and your clients will support your decision.
To sum these tactics up, you have a responsibility – to yourself and to your employees – to run a successful business, and the success or failure of a business is due in part to the revenue it generates. It’s not immoral to turn a profit, and you deserve to be paid fairly for the hard work you do.
How and when you pitch the price increase may end up being what matters most in terms of its success, and thoughtful positioning of your business decision can determine whether or not your staff and your employees accept or reject your pricing. I heard a tale once – from an industry that shall remain unnamed – of a CEO who announced a hefty price increase to a room full of salespeople, coincidentally enough on the same day that he drove his new custom Bentley to work. His timing left much to be desired because it left his sales force with a price increase to explain to their customers and the belief that they were funding the CEO’s extravagant new car purchase. Choose your moment, explain your good reasons, and you’ll be surprised at how little pushback you receive.