This past week I was introduced to a potential client whose major issue was the fact that he, the owner, was not getting paid. By the time overhead was covered, (rent supplies, etc.,) and staff salaries were paid, there was nothing left for the owner. Since opening, two years ago, the business has been growing at a steady pace and everyone is always busy. During this time, the owner has been supporting himself and his family from savings.
If you have all the business you can handle and you are not as the owner being paid, much less generating a profit, there is something wrong. Causes can be traced down to one of two issues: first, the system for the delivery of the product/service is inefficient or second, the pricing is too low. After an analysis of the business I determined that the prices charged for the services and goods provided would never be able to cover expenses.
When I relayed my finding to the owner he said he was afraid to raise his prices because he would lose his customers. The following is the communications process we worked out to inform his current customers of the price increase:
- Benefits: to keep your current customers happy tell them about additional benefits that they will be receiving as a result of the increased prices. There may be something you are currently doing that they are not aware of or it may require doing something a little extra.
- Value: explain to your customers that even with the increased prices your services/products are still a great value. Include such topics as reliability, availability and preferential treatment.
I found that by increasing prices with an explanation such as illustrated above, most current customers will stay with you. A price increase also conveys the message that you are in demand thus reinforcing their decision to stay with you.
Another possibility to use when increasing prices is to offer a “platinum” level service at a higher cost than your standard service; this way current customers have a choice and some will chose the higher priced service when the benefits are explained.
There comes a time when most small business owners will be faced with price increases in their products or services. The way it is presented to current customers as well as future customers is critical. It takes time and planning and should not be presented in an apologetic manner. If you don’t value your services and products then no one else will.
Trust is formed by a business owner’s character and credibility.
Nick J. Petra CFP www.strategicduck.com