How to introduce a price increase in your company?
The economic reality forces almost every industry to raise prices.
Inflation, the crisis related to the war, access to raw materials, the increase in the minimum wage – all this is related to the increasingly difficult economic situation of entrepreneurs.
Are you running a business? Sooner or later you will have to review and increase your prices. How to do it right?
1. What does your price consist of?
A well-calculated price is a common and basic business strategy. Therefore, it is worth being aware of what makes up the amount that you ultimately give the client. What is the price structure in your company?
Start with a meticulous listing of your own costs, taking into account your working time, costs of semi-finished products / components (if you produce something), costs of tools necessary to perform the service. Are you renting an office and have you recently been affected by an increase in rent or electricity bill? Include this in the new pricing. You can read how to control company costs HERE.
If you work on an hourly rate, add up all the costs and then divide them by the number of hours you work. Only add your profit, i.e. the margin, to well-calculated costs. Read how to improve your workflow by billing according to the hourly rate HERE.
When approaching the price in such a conscious way, you will be able to easily justify the reason for the increase of your price to the customer.
2. What does your client pay for?
Do you realise that the growing awareness among consumers also applies to your company? You can take advantage of this trend by planning price increases.
Your client will be open to pay you more if he sees unique values in your product or service. It depends on you how you position your brand – do you offer a very high quality product, or are you an exceptionally reliable craftsman, or do you have outstanding professional experience?
It’s possible that your clients may appreciate this and pay you a higher rate. Remember that you can build your company’s marketing communication around these values. Find your uniqueness and announce it to the world!
3. How to play with the price? Price increases and competition.
Your business does not operate alone, so when setting new prices, you must take into account the prices of competitors.
Here you have three strategies to choose from:
- You can compete with a low price – then you will have the chance to sell more.
- Give a slightly higher price, assuming you position your offer as unique. Then makesure the customer knows what they are paying for.
- Try to set prices at an average level – then on the one hand you have a lot of competition, but if you manage to stand out with your offer, you also have a chance for having more sales.
4. Juggle with the margin
Not everything in your offer has to have the same margin, because prime costs are not always equally distributed among all products or services that you have in your portfolio. When you are aware of this, you can build an offer in such a way as to emphasise the sale of products or services where you have the chance for the greatest profit.
5. Juggle the price
Who said that the price for your product must always be the same? When presenting an offer to the customer, you may take into account the specific requirements needed for the assignment.
For example, you are entitled to add extra earnings for:
• rush, i.e. work under time pressure, with a short deadline for implementation,
• for the work you have to do on the weekends,
• for a service or a tailor-made product.
You have the right to calculate each exceptional circumstances of the order performance according to a separate price list.
6. Increases and price psychology
The way you present the price has a big impact on how the customer sees it. And it’s not just about the common technique of rounding down amounts (so €0.90 instead of €1).
Those customers who are price sensitive, i.e. they like to pay less, will appreciate that you will give them a discount. In eFaktura you can prepare a professional offer, with a discount, HERE.
Others, on the other hand, will look at the price, which was supposed to be very attractive, with suspicion. Are you able to meet expectations and provide a good service for so little?
Can you add something as a bonus within the same price? The customer will feel appreciated, thus it increases the chance to build a long lasting relationship, and those business relationships are the ones that bring you the most benefits.
Look at your product through the eyes of the customer and think about the results of your work – then you will gain more perspective and confidence, and it will be good for your wallet.
There is no one standard model that you can follow about having an adequate price, which is why this topic evokes so many emotions. Remember that any rate you set will be good if you can justify what it is based on. This all depends on good communication with your customer. Thanks to this, you will avoid accusations of unfair price increases, and at the same time you will take care of the financial stability of your company.