Editor's Note: Learn from a panel of experts and entrepreneurs who have successfully financed their own ventures and are helping others do it at the Thought Leaders Live 2013 event May 29, in Long Beach, Calif. Event and ticket information can be found here.
I am constantly looking for ways to raise the prices on my products and services so that I can improve the margins. As you continue to expand your company and improve your services, you'll one day face the challenge of raising your prices.
Almost every day you experience higher prices at the grocery store, gas pump and a range of other places. From time to time, the government requires you to increase employee wages. Why are you the only one not raising your prices? You may say, "My business is so competitive, and it's all price driven." Most companies make that claim. Your competition may be unwilling to ask for a higher price, but it doesn't mean you should be. You are not your competition. You offer a different service, you are a different company, you have different people and hopefully what you offer is a better value at any price. To be successful you must figure know your unique value proposition -- what it is that sets your apart from others.
Let your competition operate on margins so skinny that they are barely able to pay their people well, expand their company and service their clients. I refuse to be the lowest-cost provider. I am committed to being the highest-value provider.
If you are scared to raise your prices, it may be because:
1. You believe your customer buys only on price.
2. You have lost a sense of your value-added proposition.
3. Your team lacks sales skills and closing techniques.
Higher prices are good for your company. Higher prices allow increased compensation for your people, the chance to keep up with higher operating costs and hopefully greater margins for you to increase services to your clients.
Recently I sent an email to my staff with a new pricing schedule: "You have 45 days to inform your clients that if they want to remain on the current pricing, now would be the time to make that decision as our prices are increasing in the next quarter." This gave our sales team reasons to close more deals and our customers an opportunity to take advantage of the lower prices.
Never try to explain the higher pricing by saying: "Due to higher cost, we are having to raise our prices." Don’t blame inflation. Instead, increase the value of your offer. No one wants to pay a higher price and get nothing more.
The challenge with increasing your prices is never convincing the customer but convincing your own people. When I raised our pricing, I didn’t check with our people. I made an executive decision and explained to them when, why and how.
When you increase prices, do it in writing, give choices and, most importantly, add value to the offer. Explain the reasons that benefit the customer: added content, additional service or support. It could be something new or something you haven’t been telling your clients you do for them. I have never seen a company fully presents all the things it actually does for its customer.
Seems impossible? Not only did we raise our prices successfully, we increased the number of sales we made in the following quarter.
Keep in mind that when you raise your prices you will be presenting to two groups: new and existing clients. The new customers don’t know you raised your prices. Show them your value proposition and justify your price. It is your current clients that you will be concerned with. These people will divide into two groups: those aware of the price change and those that don’t notice it or don’t care. Again, your biggest problems are with your sales team. Don’t apologize for higher prices. Just present and close. Your presentation should not be about the new pricing but about your offering.
The only clients you need to be concerned about are those who object to the higher prices. For example, we heard: "Last year I paid only $1,500 and signed for only 12 months." Our response? "Great, and that is why we are still offering that pricing to you while increasing new content and additional support. By going with the 24 months, you can maintain your old pricing."
Higher prices are good for you, your team and your company. And they should benefit your customer if you are improving your product and service.