Posted on: February 9, 2023
As most B2B businesses experience rising costs across their operations, increasing their own prices is fast becoming the norm. Of course, there is always a risk that customers will struggle to accept the higher price and then purchase elsewhere. Few businesses want to reduce their customer base, however, they need to cover their costs.
This article explores how to reach a successful outcome when you need to raise your price with a customer. ‘Successful’ in this context means both parties are happy with the value that the new price represents.
Make it personal
While it may be tempting to issue a blanket email announcing a price rise to your customer base, this is a rather impersonal approach and doesn’t demonstrate your care and empathy as a supplier.
Instead, you are more likely to gain acceptance of a price increase if you have a conversation with customers. In this environment, you proactively offer a dialogue where both parties can express their views, listen and reach a (collective) satisfying outcome.
To help reach that outcome, it is essential to prepare for the conversation. Here are some areas to consider…
In preparation for the discussion…
Minimise the price rise where possible
Your organisation’s services/products are just some of the ones the customer needs for their operations. Like you, they will be facing rising costs across the board.
Many businesses are proposing a standard rise in line with inflation. If your organisation can review its costs and identify savings and different ways of working to reduce the price rise further, this could give a greater competitive advantage.
For example, can you use automation/technology, cheaper suppliers or do things differently to keep the price increase to a minimum?
Shop around before the customer does
When setting your new price, analyse how this will compare to your direct and indirect competition. Be clear about what they are offering for the price they’re charging and how this compares to your approach.
Your customers will assess the competitiveness of your fee in the market, and it’s important they compare like with like. Understand how your price and offering differ from ‘cheaper’ ones in the market. Help them avoid making a harmful decision for their business if the cheaper offer will bring more problems further down the line.
Investigate any financial incentives if the client/customer helps you
If the customer can make their purchases easier for you, is there an efficiency gain you could pass on to them at a lower price? For example, if the customer did any of the following, would it bring your business financial advantages:
- Committing to a certain volume of purchases
- Giving you a longer forewarning of the order so you can manage it around others
- Purchasing in your less ‘busy’ season
- Ordering in a certain way, so your team spend less time checking and chasing
Also, could you offer a financial reward if they recommend another customer/client to you to reduce the cost of the sale?
Are some customers negatively affecting your bottom line?
With staffing shortages in many B2B sectors, some organisations are closely reviewing the profitability of their customers. This involves identifying which they’re supplying at a loss or at a minimal profit.
Many businesses experience some form of Pareto’s principle, where 80% of their business comes from 20% of their customers. If your business is diverting a lot of energy and effort to customers who are proving unprofitable, should you change how you supply those customers? Should you divest them entirely and find an alternative supplier for them to preserve and grow your more valuable customer accounts?
Having the discussion…
When it comes to having the price rise discussion with the customer, it helps if you can…
1 Be transparent
Here it’s good to convey the reasons which have prompted the price rise. Explain which areas of your operations have experienced rising costs and by how much. Also, outline what steps you have taken to minimise the price increase. Show this decision isn’t taken lightly.
2 Explore what impact this will have on the customer
– Understand how important your product/service is to them as part of what they do. What other rising costs are they currently experiencing? What’s their budget this year… and next?
3 Explain and quantify your value
– This is especially important if you are in a highly competitive market and think the customer will shop around. When explaining your price, outline all the value the customer gains for that. For example:
- For long-standing clients/customers – the knowledge and experience, and alignment your organisation has with them. You don’t need a long learning curve to deliver what they want, and in the way they want – you completely ‘get them’.
- Any added value you already wrap around your offering – e.g. pre, during or post-sales. Try and quantify how much that equates to.
- The speed, efficiency and minimum hassle you bring in supplying them (as opposed to trying someone new who will have a more significant learning curve).
- Any favourable payment terms you provide – eg 30 days instead of upfront, bulk buy discounts.
4 Be confident in your approach
– If you don’t believe in the new price, the client/customer will see this and resist. Preparing for the discussion, as described earlier, will give you the information to deliver your message confidently.
5 Change the spec if the customer really can’t afford it
– While you don’t want to lose the customer, your organisation still needs to cover its costs. Caving into the ‘we can’t afford it’ challenge doesn’t inspire confidence and suggests you’re not serious about your new price.
Instead, find a mid-ground with the customer by changing the spec of your offering to come in at a lower price. For example, can you take out a specific element? Can their team do a part of the process instead?
Work together to find ways which help you supply the customer, but which both of you can afford. See also 5 alternatives to discounting your price.
Adopting a collaborative approach to the pricing discussion is more likely to secure customer loyalty in the long term.
Given the recessionary forecasts, that will be very important for all businesses in the months ahead. And as the economic outlook is uncertain, organisations that check in with customers periodically to see how their offering/price and value are still regarded will be able to hold their ground in a competitive market.
Things change and keeping your customers close, and knowing how they are faring, will avoid unexpected negative news further down the line.