How can I raise prices on my existing customers without losing them?
We launched our startup initially with all inclusive one-price packages for our services. As we grow, our operating costs can no longer be covered with the current prices we have set. I want to make our packages more expensive, and then offer custom pricing for customers that might not need everything we offer in our packages. Should I only raise prices to new customers, or can I raise them on my existing customers?
this is indeed a tricky one :we have done this in the past , advise all current customers that due to the rise in all operational costs , you will be obliged to raise your prices in June 2016 and furthermore will be introducing a pro-rata pricing scheme . New customers can be issued with your new desired rates.
Price your services to new customers as accurately as you can, but give your current customers at least 90 to 180 day notice of your pricing changes. I would suggest that you discuss the changes with each current client to accept their input and direction. You may find that they may sign on longer if they know the changes are coming.
Communication is the key. As others have expressed, most of your customers will not be surprised that a raise in prices is necessary over time. A timeline for the raise in prices is essential - let your customers know when it's coming. Obviously if you are in a business with contracts, you must honor the current contract, but let all of your customers know before their renewal date that your pricing structure has changed. (A good long-term contract should allow for changes in pricing as your costs change, if you are contract-based and yours doesn't, that needs remedied in this process, as well.)
Also, you could couple this communication with a promotion that would allow them to stay at the old price point or a discount over the new rates if ________ (fill in the blank - they refer a new customer, they sign a long-term contract, whatever works for your business model that makes sense and still allows a reasonable profit margin).
In all, if your customers are there just for price, they may well leave, but if you have served them well and demonstrated value, they will understand the need for an increase in price over time. In addition, if you are allowing the customer to unbundle and not pay for services they don't need, this will serve both them and your business model well in the long-run.
Use this same explanation with your present customers and raise their prices. You MIGHT show the full price rise to them and then discount it, but either way: raise your prices.
Have their other expenses not increased? Do you think they won't understand?
Hold your head up high: you're worth it!
Charlie Seymour Jr
Easy, with a good valid explanation. Everyone knows costs are going up and a reasonable price increase with a good explanation should be acceptable to all of your customers.
In working with clients, I've been amazed at how LITTLE an effect it has had to announce increase in prices for existing customers. Sometimes they have gotten the response "It's about time. I expected this a long time ago."
Now I don't know the economics of your business, but if you are losing money or making below threshold profit, even losing some existing accounts quite likely will be offset bottom-line by those who stay.
As others have said, I would fully suggest being open and honest, and if conducive, deal with each one individually rather than making some blanket announcement.
You are asking the right question, and it sounds like its time to move and get your client portfolio cleaned up and overall more profitable.
All the best...
There can be multiple approches to this. 1 you can simply increase price, logical group of customers will understand the inflation but you will definately loss few customers. 2 break down package into smaller activities and try to save money by selling smaller activities as well as comprehensive package, which will bring new customers to the business as well as retain old ones. 3 you can include some sort of hidden/underline charges/Fees you will loss some of your customers. It could be done many different ways, you business model have lot to influence in pricing....
If i was you, i would re engineer my business process and try to save money from it i.e. 0.5% -1% per activity/service, then i would review pricing model and maybe introduce different packages for differnt customer maybe introduce new services, partial servicing, and increase service quality to gain more customers and be profitable again. In my experience service quality is only thing that can help you increase prices without lossing many customer, it may increase your sales even to most exgerrated levels but it needs time, it is a very slow process. And lastly, your taget market, competion complete business model everything thing is to be reviewed before even thinking about changing prices. What ever you decide, make scenarios test them have opportunity cost calculated. Calculate risk vs benefit. In simple words, review your business plan, give it a good time take expert opinion, test scenario, and start with something small smaller product, small market segmentation or decide of loss leader...
I am telling you, we did all of this a while ago in my company, it is a big company so it took us 9 months to do it (team on some 20 people).
How about offering clients something that can be perceived as extra, in exchange they have to raise their prices?
Or just speak with the ones who are happy, providing the increase isn't too much, happy clients may be more agreeable.
Pricing is one of those issues that will never go away but is also critical as it can make or break a business.
For new clients you have nothing to explain. You quote your prices and they are on your new rates to start with.
With your existing clients, I would firstly be honest and open with them. Hopefully you have built enough relationship with them that you can have an open discussion.
Secondly, be prepared to work a transition pricing. Remember every business works on a budget, and if people have based their annual budget, or existing bids (if you are sub-contracting), then you need to come to some kind of agreement. This allows your customers not to get burned and feel you had them over a barrel. Any feeling of resentment or impression that they were caught between a rock and a hard place, may encourage them to look elsewhere. Some you may be happy to lose but most customers you would want to keep.
Remember not all business decisions are rational. As much as business people like to think, most decisions are truly irrational and wholly emotional, which you do not want to bet at the receiving end of! Best deals are when both parties win, so you should always go for Win-Win. If you go for Win-Lose, whoever ends up on the "Lose" side will feel resentful and will get even as soon as an opportunity presents itself.
So work with them and show them you understand their issues and this should enable them to give you a fair hearing.
Why not be as clear in your communication with your customers as you have been when asking your questions here? "I am transparent with you, I need to cover my operating costs" and so on. If you raise your price in right proportion to your costs you will never lose a client... unless the price is THE factor of their choice. In some countries (i.e. France) you can't sell without doing benefits - it's illegal. This is one of the tip for the negotiations as well...
Hi Jacob I think Ben has made some great points. An additional thought: it appears you do recurring work with your clients so that at some future point you could declare there will be a price increase. Essentially you are introducing the idea with time to spare. More importantly (and again to Ben's point) do you need to increase the price of current customers or is the flow of new customers adequate to offset?
I've been pondering this question as I recently raised both ends of my sliding scale hourly rate. I think I have enough new customers paying in the new scale to sustain myself, however I think it's good to be transparent with my old customers, share my new rate, and ask if they're willing to pay a little more.