The cost of doing business has skyrocketed since March 2020. Supply chain disruptions, port congestion, labour shortages, and demand surges, as well as rising raw material, energy, and transportation costs, have been cited as factors driving rising inflation.
A strange phenomenon affects many entrepreneurs and small businesses — fear of price increases. However, price increases are an unavoidable part of running a successful business.
And that is precisely what this week’s Let’s Talk will be about. We asked our experts for ideas on how to raise prices without losing customers.
“The cost of doing business for many SMEs is rising as Australia grapples with a 20-year high inflation rate, supply chain challenges and rising rental costs which are equally impacting the business community. Many companies now find it difficult to determine how to protect margins or whether there’s a need to pass higher costs on to customers.
“It’s important for companies to look at where they can offset these increases, and proactively communicate any higher costs to customers if needed. While many SMEs are reevaluating their spending, the first thing to get cut from a budget is often marketing. The problem is, when SMEs cut their marketing budget, much of the communication between that company and its customers is halted, hurting retention efforts and making it more challenging to attract new ones in the long term. Fortunately, the democratisation of AI and other technological advancements in marketing has widely levelled the playing field, increasing sales and customer retention.
“Instead, it’s critical that SMEs think strategically about managing their advertising and operational budgets leveraging data-driven insights that can tell which content is performing the best and optimal times to post to ensure businesses get the most reach and engagement. Companies should maintain consistent touchpoints with their customers to let them know early on of the challenges expected and provide an opportunity to directly engage with the customer before surprising them with new costs. Underscoring the business’s value proposition while providing transparent updates about the new costs will remain key to maintaining a customer’s trust and loyalty.”
“Communication is key when it comes to raising prices. Giving an advanced warning of upcoming price changes not only prepares your customers but also gives them the opportunity to stock up on their favourite items at the current price, particularly if it’s an item they’re regularly buying.
“Being transparent with the reason for the price change is also important; with the cost of living rising, price is a key concern for many shoppers. At the same time, there’s a growing number of consumers who want to support small and local businesses. If loyal customers understand why prices need to go up, whether that be due to rising fuel prices or increased manufacturing costs, they’re likely to be forgiving and continue their support.
“Of course, once prices do go up, it’s important to be committed to delivering equivalent or better customer service to ensure customers still experience good value when purchasing through your company.”
“The best way to introduce a price rise that your customer base will embrace is to build in extra value. A lot of our gyms are currently restructuring their membership levels and introducing a Premium-level, which is packed with value and new services as we roll out new classes like Reformer Pilates nationally.
“When presented with the new membership options, many members are attracted to the premium offering and have chosen to adjust their membership voluntarily because they see the value. Nobody wants to hand over extra money without understanding why.
“After a few tough years and ongoing business impacts from covid, customers understand the challenges many businesses face, from staff shortages to the increased costs of materials/products. Being transparent and honest with your customers (many of whom have stuck by you through rocky times!) is essential when communicating price changes. If you can re-package your offering and show more value for the higher price, even better.”
“No matter the industry, costs are rising, and your customers may be feeling the pressure to find places to cut. As a vendor, if you want to make sure your product or service stays within the budget, you must make yourself indispensable and affordable.
“That’s where software subscription models can step in to provide a win-win for both customers and vendors. Flexible monthly or annual payment plans give your customers relief on yearly budgets, while also offering them access to the latest and greatest technologies and services that propel their business ahead. Plus, great service providers understand that they need to go the extra mile to make sure they are constantly providing value and earning that regular subscription payment.
“For vendors, subscription models offer an effective way to grow your customer relationships. Moving away from a single-transaction philosophy encourages ongoing contact, deeper insights, and even better customer experiences that can ultimately deliver increased revenue.”
“From supply chain issues to inflation to staff shortages, small business owners face a host of issues causing their costs to skyrocket. There is no easy way to communicate this for businesses looking to pass on these added costs to customers. But there are some steps you can follow to safeguard your client relationships.
“First, explain the reasons for the price increase clearly, to help customers understand why and when it will come into effect. Price increase templates can help you communicate with clarity and confidence, and a follow-up call never goes astray.
“It’s also important to focus on the customer and increase customer value, for example, ensuring continuity of services. Use this as an opportunity to remind customers they are valued partners and the benefits you’ve brought to date.
“Finally, remember that not all customers can afford price increases. Leading with empathy will go a long way in building a meaningful relationship.”
“At Biome Australia, we develop, commercialise and market live biotherapeutic probiotics and complementary medicines in Australia, New Zealand, and the UK.
“Logistical and shipping price increases in the COVID environment have hit product-based businesses especially hard. The manufacturing and distribution of probiotic products, a core part of our business, has been impacted by the rising cost of international shipping, up 200 per cent, and raw materials, up in some cases 30 per cent, over the past two years.
“Rather than passing increased costs on to our customers, though we know this can sometimes be unavoidable, the situation prompted management to review what we can control.
“We’ve been really fortunate that our use of analytic technology and manufacturing efficiency improvements have allowed us to reduce wastage, counteract skyrocketing costs, and improve our margins from 54 per cent to 58 per cent in H1 FY22 vs FY21. We are very grateful to have an innovative team and technology behind us which put us in the position to achieve this.”
“It’s important to approach this subject in a considered and sensitive way, by preparing written communications for customers which outline the percentage increase, detailed reasoning behind the price rise, and the date that it will come into effect.
“It’s important to provide a minimum of 30 days notice in these instances, so the client has time to consider these changes, and adjust their budgets and forecasts (if they too are a business) accordingly. Depending on the nature of your organisation, it may also be worth following up on these communications with a phone call or meeting.
“I always advocate for following a proven formula and removing the emotion when setting pricing, and the same should be applied when considering a price rise. Rather than pluck a figure out from the sky, analyse how much your costs are increasing, and use this to inform your revised fees. Customers will expect an explanation, and this approach will enable you to justify the changes you’re making.”
This post was aggregated from Dynamic Business (https://dynamicbusiness.com).