Communicating price increases to clients

In our last blog we discussed why it’s okay to increase prices, and because it’s such an important issue, I’d like to now discuss how to communicate price increases to your clients once you have a new pricing strategy worked out. You need to explain it to them properly so they’ll understand, if you don’t do this and simply raise prices without warning, it’s a sure way to alienate them. No loyal client wants to pay more for a product or service without understanding why, so communicating your price increase is more about how you go about telling them rather than the price rise itself. The logic behind a price increase is simple: It allows you to continue to offer your product or service, which is still better value than your competitors, in a sustainable way.

Every price increase requires timelines. You need to create a timeline for the announcement and another for implementing the actual increase. Providing a clear timeline for any price increase allows your customers time to prepare for it and allows you time to make sure you do not breach any pre-existing agreements. This is a delicate period to negotiate and you want to make sure you handle it properly. Provide your clients with enough notice to allow them to make adjustments to their systems and to have one more service at the existing price. Committing to pricing transparency means talking to your clients honestly and is also a good way to remain in control of the ongoing relationship.

The first rule is that you must announce it to them before it happens. Start by telling your clients about the price increase, and this must come from management level not someone junior. It’s important to let your most important clients know about the increase early. It’s a mistake to let them get the news through an email, in a general announcement or worse, from their own accounts department. Don’t ever communicate a price increase after the fact. Give the customer at least 30 days to enter the information into their system, to adjust their purchase orders and to consider alternatives. Information regarding a price change should only appear on an invoice after every person involved has been personally notified. Sufficient time should be allowed for at least one invoice to contain a note of the pending increase in price.

After your most important clients know, it’s time to make a general announcement. Use the announcement to tell others why you are raising prices and be honest. Share the big picture with him. Explain the reason why you’re doing it and they’ll understand, but don’t go on about it, no one wants to listen to long winded explanations. The best price increase announcements are actually positive. Instead of focusing on the price, tell your customers what they get in exchange for the increase. Keep it positive and avoid an apologetic tone. If you are raising your prices for a good reason, there is no need to apologise. You’re just asking for a bit more money to provide a better product or service which will benefit them. Always thank clients for their continuing business. Never rationalise an increase by profitability. Your customers never want to be paying more so you make more profit. Even hinting that you are trying to increase your profit margins with price increases can damage your relationships.

You should also avoid raising prices for the sake of raising prices. You want to ensure that your price rise will reflect the value you offer, so focus on reinforcing your key value propositions to sweeten the deal. Your product should always be improving, but it’s simply counterintuitive for somebody to pay more for the same thing they got for less before. Justify the price increase by adding features or providing some other type of added value like more content, additional services, support or something you haven’t been telling your clients you do for them. Always demonstrate that the value you provide is increasing more than the price. This way, clients know that they’re still getting a good deal.

Sustainability is a key component of a price increase. When you make small price increases to adjust to changing conditions and the need for innovation, you protect yourself from having to bail yourself out with big price rises. Price increases are a fact of life at certain points in the economic cycle. Nobody likes them, but your customer has to adjust to the fact, just like you and your suppliers do. It’s also important to monitor your pricing activity. Before and after the price increase, record the sales patterns of your individual clients. It’s important to know as soon as possible about any changes that occur as a result of the price increase.