With the hangover from the recession still throbbing, most companies are extremely hesitant to raise prices. But you can’t expect to provide great service at rock bottom prices forever.  There are three main tactics for raising prices. (Begging, while it may occasionally work, is not a sustainable strategy.)  Before you embark on any of these strategies, you need two important pieces of information.  First, you need to get feedback on the level of satisfaction perceived by your customers. Get someone’s spouse or college kid, stick them on the phone, and start calling your customers. The script: “I am calling on behalf of our CEO who wants to know in confidence your level of satisfaction with our organization.” Keep it simple, not more than 5-6 questions, and get some narrative.  Collate the results by customer service area, sales person, type of business, division, whatever is important for you to qualify performance. I can tell you, if you are providing good service (at least “meet” to “exceed expectations”), raising prices is a lot easier. If the scores are low, don’t worry. Tactic #2 addresses this.  The second thing you absolutely need is a client profitability model. Simply take the client revenue over the last 12 months, calculate the variable costs (labor, suds, materials, etc.) and subtract to get gross profit. Then take and allocate all of the fixed costs associated with that account. (Make sure you are sitting down–I have never found a CEO who wasn’t surprised by the results.) Remember: Pricing must be tied to profit.  Ok, now for the tactics.  Tactic #1 – Full Disclosure  Every chief executive hates this, and usually puts up a big fight that it won’t work. Believe me, I have done hundreds of these and it works. Here is the pitch:  “Mr. Customer, I am here today to share with you our costs in supporting your business. It is our intention to share highly confidential information as a way of getting your feedback on how we might solve a problem, which is that we are losing money. This is not just about raising prices, it’s about developing a viable financial plan, and the changes could include many other things that affect expenses.  “The alternative for you is to find another provider at these prices. I can tell you, it will just be a matter of time before they too will find that they are unprofitable. We provide good service, you are happy with our performance, and we know how you want things delivered. I suggest we put our heads together and find a solution.”  I would not hesitate to show your excel spreadsheets and be prepared to provide backup. This approach is a very disarming, and will make your request for a price increase go a lot more smoothly. Some customers won’t bite, of course, and you may need to decide if they are worth the effort at the price they are willing to give you. Most good customers want you to make a small, but reasonable profit.  As for tactics #2 and #3, stay tuned.  Click Here To Apply For Forbes’ List Of America’s Most Promising Privately Held Companies
It is possible to raise prices through full disclosure of your costs to your customer.  Engage them in the process of finding ways to become profitable.