As prices continue to rise, you've likely noticed that your cost of doing business has increased as well. After all, the main point of any business is to make money, and you can't do that if you're no longer breaking even.
It's inevitable in every industry – you must raise your prices to continue making a profit. Many factors decide how much to charge, all of which are dynamic. The rising cost of goods, inflation, and a changing market are just a few reasons why any small business has to reevaluate its rates regularly to stay competitive (and to stay in business).
If you're overworked and overbooked, you're undercharging. People know your worth and are fighting for your time. It's time to increase your prices!
Although there's a lot to consider when raising your rates, make a point to reevaluate every six months. Here are some tips on how to increase your prices and how to tell your customers.
- Accept that you have to do it
It's a daunting task to consider raising your prices, as the danger of losing customers will be front of mind.
But the bottom line is this: you cannot deliver quality service if you're not charging enough. It's that simple.
If you're spinning your wheels trying to make up for the difference, you'll lose customers anyway. You won't be able to deliver the excellent service you're known for if you're constantly overworked trying to find profits elsewhere.
Raising your prices is part of doing business. It doesn't make good financial sense to swallow the cost to appease your customers. With that in mind, know that you're doing the right thing for yourself and your clients.
- Understand what's costing you more
At least once per year, consider what your business costs. Check which products or services are making money and which aren't. Then take it a step further and pinpoint the breakeven position for each area.
You will then be able to decide how much more you need to make to be profitable and comfortable. Evaluate all avenues – supplies, staff wages, bills, rent and utilities, training, etc. Doing this regularly lets you see which areas cost you more over time. Those that cost you more will likely benefit from a price increase.
- Decide your approach
A blanket increase would make sense if costs went up across the board. However, if you find that only some of your services now cost more to operate, it might be a good idea to increase only those prices. Your customers will appreciate only the necessary cost increases being passed on.
- Gauge the satisfaction level of your current customers
If you know that your clients are happy and believe they're getting excellent service, they will be happy to continue paying for that. They won't bat an eye when you inform them of your increase.
But, if they're not currently satisfied, a price increase will be an excellent excuse for them to leave. This isn't necessarily a bad thing–some of the lost profits from those customers leaving will be made up by the price increase to other customers. And clients that aren't happy could become long-term headaches for your company.
- Give a lot of warning
If you offer subscription programs (such as system inspections and routine maintenance for homeowners), email your client base three months before your planned increase to let them know your plans. State the reasons for you're raising your prices now.
Emphasize that this change is necessary to continue delivering the high-quality service they're used to. Giving enough notice to your clients, so they have time to react and prepare shows you respect them.
Send a personal message to long-time clients or ones that hold significant accounts. This shows them that you care about their reaction and gives you a chance to listen to their concerns.
- Keep the communication lines clear
Most clients will be OK with your price increase. Some will likely have questions, concerns, or even complaints. Focus on answering their questions.
This isn't a hard sell – it's a discussion. Because you've done your research, your increase is completely justified. As you take the time to chat with your clients, they will come to understand this. Remember, you aren't asking their permission to increase your prices. You're letting them know of the decision to do so.
- Communicate your value
Don't be shy about bringing up what you've delivered in the past. By reminding them of the great service you've provided already, they're likely to come around.
It's a great idea to provide options if they're still hesitant, but don't give away more than you can. For example, you could offer to keep their prices the same but trim the services included for that price. You can find a middle ground that works for both of you – alleviating their cost and your workload.
Final thoughts
Once you've researched and informed everyone, go ahead confidently with your price increase. You'll find that you can keep your customer base while keeping up with the increased cost of doing business. By doing so, you'll be able to continue providing your clients with excellent service.
If you're already in regular contact with your clients, the conversation around rising prices will be much less awkward. Remember, the price is how much your clients are paying for your service, but the value has no monetary measurement; it's what the consumer believes your services are worth, and you are worth it. Contractors like you deserve to be wealthy because you bring value to other people's lives.
About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com
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