Fred Pieplow

What You Must Know Before Raising Your Prices

There is a saying that goes like this: The best time to plant a tree was 20 years ago. The next best time is today. You can say the same about prices. The best time for a price increase was any time before today, because then you do not have to tell your customers the bad news today, and you can focus on more pleasant tasks, like closing a sale.

No customer likes a price increase, especially in a period of low published inflation numbers. Yet, some items experience large increases and others see large swings up and down in prices. So what is a supplier to do about managing price?

Start by taking care of the non-price customer issues:

A. Make sure your Value Proposition is current and compelling. If you are clearly the best value, price does not matter (well almost doesn’t matter).

B. Make sure your quality is what you say it is. If you have poor quality, no price is low enough for the market.

C. Break a long standing industry rule on terms, delivery, or other areas in ways that are hard for the competition to match, adding value to your offering.

Next: take a hard look at pricing.

1. Educate your customers on why the increase is absolutely required by market conditions.

2. Explain all the cost savings initiatives you have completed to keep the increase as low as possible.

3. If A, B, and C above are in place, be aggressive in keeping your price at a margin that works for you. Consider a special discount for the best customers that phases out over a short time to ease the pain of an increase.

As always, consider the impact that your price change will have on your sales volume. Maximizing revenue is not the objective; maximizing Value Added (revenue less materials and other direct costs) is what you are reaching for.

One final point: your costs do NOT determine the price – the market does. Test a price increase on the market from time to time even if your costs have not changed. You can always reduce the price if the market will not accept the increase. Remember, if your customers are happy with your non-price related factors, they will usually accept your price increase.


Article written by :
Fred Pieplow
Fred Pieplow is a business strategist who uses his talent for asking highly impactful questions to help businesses understand how each decision impacts their cash, the lifeblood of their company. He is passionate about uncovering hidden opportunities that create explosive business growth. In 2009 Fred was named a "Michigan Entrepreneur of Distinction" by Corp! Magazine.
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