GPI 277 – Price increases: Ask for ‘small’ ones and ask often — do not delay.

Regardless of your industry, you will need to raise prices at some point; otherwise, your time in business is limited.  It is easier to raise prices every year a very minimal amount rather than delay this decision.  Small amounts are barely noticeable, seem justifiable with normal labor and tax increases and are probably easier for buyers to accept.

Your buyers may already be pre-approved to accept small increases. Your customers or buyers may already be ready or pre-approved to take small price changes up to a certain predefined limit.  What you do not want to do is wait several years and then be forced to ask for a large percentage increase.  Buyers never remember how much you saved them when your prices stayed flat.  They will inevitably react negatively when forced to go to their boss or higher authority to get your large increases approved.  Your job is to go after annual prices increases at a minimum if at all feasible.  Ask small and ask often.

IDEA for your programmer: 

How long has a product gone without a price increase?  Have your programmer design a report that indicates the number of months and years that your current prices have been in effect every time you either generate a quote or ring up a new sale.  You need to be reminded as frequently as possible and it needs to stare you in the face whether you wish to address this or not.

Your products without adequate price increases should pop out at you.  Build this information to pop out at you from your system.  When one enters an item that has not been raised for a couple of years, have that part flash on the screen “Price Increase PAST DUE” and require an override to get your staff’s attention.  You need to program this into your system in order to fold in price hikes so they are not so noticeable to your customers.

Design a report to show those with and those without increases.  Have a printout available and show the products/services, volume of sales and the age of the last price hike.  It is obviously more important to focus on the larger items that comprise your sales revenue to have the largest impact.

Award your reps for getting higher prices; give them some of it.  One more thing you need to consider is rewarding your sales personnel for price increases regardless of the size.  Reward the frequency because if you reward sales personnel only on gross sales, you will get lots of gross sales at lousy margins.  Reward gross profits which beg for price increases.

Times to analyze your pricing history before submitting a price:

• Review pricing history when entering quotes on existing parts/products for this customer (repeat orders).
• Review pricing history when calculating new hourly rates for a service company.  Do this annually because labor rises annually.  Announce it early in December for January 1st increases.  State material cost reasons, higher insurance, higher bonding costs as well as the labor rates for your experienced workers providing that great service.
• Review pricing history when material costs have risen repeatedly and are significant as a percentage of your overall cost structure.
• Review pricing history when taxes have risen.  Your goal is to pass them through and fully disclose the source of the increase.  Consumers understand taxes and their implication on costs.
• Review pricing history when analyzing your worst customers’ profit performance, those bottom dogs of the profit list sorted by highest to lowest net profit customers.  Raise prices on all of your ‘dogs’ at the bottom of the gross profit dollar listing and do not look back.  You cannot afford to carry hemorrhaging companies on your customer list where those customers generate an overall net loss to the company.

Do not blame customers for your lousy margins.   Remember that those customers do not know your cost structure so your losses are your problem and not related to what the customer has done in any way.  You have created these problems and you must be the one to resolve them.  Raise prices; they will accept them and your bottom line will improve or they will leave and your bottom line will improve.  As hard as it is to believe, this is a win-win situation if you will just make the decision.