Price increase fatigue? Paul offers multiple tips to help you and your customer through those inevitable price-increase conversations.
Show Notes
Your attitude is absolutely critical when presenting price increases.
Your company is for profit. It’s okay to make money and be compensated for your value. The profit you gain is a metric for the value you create.
Reinforce your value with your customers prior to the price increase. Make sure they understand all the value you and your company bring to the table.
When the customer objects to the price increase, offer an adjustment period (NOT a discount): i.e., incremental increases over the next 90 days.
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How do I communicate price increases?
(Transcribed from podcast)
On today’s episode, we are going straight to the website. We had a salesperson anonymously submit a question, so let’s go through it.
“Hi, Paul. Every time there is any sort of price change in my organization, I get a handful of customers that lose their mind. How do I introduce a price increase and do so with appreciation as well as explaining the cost of generating revenue?”
This is a great question and I appreciate it. I have several ideas we’re going to address, but here’s a little more context. This salesperson has worked for some of the largest medical and healthcare companies in the world. Every company that they’ve worked for has been a leading manufacturer in whatever product or whatever industry. Now, this salesperson also has noticed this behavior in every company. So regardless of what industry you’re in or what type of product, we know that all salespeople experience this from time to time.
Now, here’s what is also mentioned: “I don’t know if it’s an issue on our end without giving a thorough explanation of when there is such a price increase, added shipping fees, et cetera, or if this is a lack of business knowledge on the customer’s end.” Now, also, it’s mentioned here, “Most of the doctors that I’m calling on are privately owned and have the biggest mouth when it comes to any sort of price adjustment.”
I get it. You’re tired of it. It’s frustrating. And one thing that’s also interesting that you mention here is that these doctors are often quadrupling their costs and fees to patients without batting an eye. Okay? So, we have a couple different frustrations here. Totally get it. I’ve experienced this myself. We are going to dive deep into how to address this concern and challenge on today’s episode.
Now, before we do that, I want to call your attention to Value-Added Selling. In Value-Added Selling, we have built a process to help you proactively take control of that conversation and guide it down a path of value. And in today’s episode, I’m going to talk specifically about defensive selling. So, in Value-Added Selling, we have an entire section of the book dedicated to protecting and growing existing business, and these techniques can be useful when you are pushing through a price increase.
So we are going to get to that question. We’re going to answer it right now. Before that though, remember, Value-Added Selling is available wherever you get your books. Hey, it would make a great Christmas present, so put a few under the tree for your sales colleagues. You can buy it at Amazon, Barnes & Noble, wherever you get your books.
Okay, so let’s get back to it. How do you handle these price increases? How do you do so in a way that you show the customer you appreciate their business and explaining the cost? We’re going to dive deep into that today.
First things first. Your attitude is critical—absolutely critical—when you are presenting your price increases. So, I’m going to give you a few thoughts here on how to maintain the right attitude. The first thing to remember is that you are a for-profit organization. If you look at your company’s website and it ends in .com and not .org, you have earned the right to make a profit. That’s not a bad thing. I know sometimes today we look at organizations that are making too much money and they appear to be greedy. And, the reality is, these organizations are successful. The profit that you gain is a metric of the value that you create. So, it is okay to make money.
Number two. You deserve to be compensated for your value. If you create more value and you help the customer grow their business as a result of your product and your value-added services, you deserve to be compensated. In fact, in Value-Added Selling, we talk about this—how equity plays a major role in the value you create and also the value you receive as an organization. It has to be fair for both parties. So remember, you deserve to be compensated for your value. You are a for-profit organization.
Also remember, profit is critical for growth and stability. We could be entering a recession next year. The Wall Street Journal published an article recently. They put the chance of a recession at roughly 48%, so it’s a coin toss at this point. Going into a recession with a healthy bottom line is critical to helping you grow and continue to support your customers. So, profit is good. And when costs are increasing, you need to make sure you increase your prices to go along with it and maintain that profitability.
Finally, the other attitude to keep in mind—customers like to partner with organizations that are prepared for the future. You know, it’s interesting how often companies will complain about price, and how your margins are higher than the competition, or your price is higher than the competition. Yet, what they fail to realize is, that profit is not just going into the owner’s pocket or to the employee’s pocket, it’s being reinvested for R & D to help sustain your company, innovate and create a better overall outcome for customers in the future. So that profit, in some ways, is an investment in the future value that you’re going to create. So let’s make sure we maintain a healthy, positive attitude when delivering price increases.
Next thing we’ll talk about are some of the tactics. So once you get your head right, we need to make sure we go in there and present the price increase the right way. The first thing I would encourage you to do is to ensure that you are reinforcing your value 90 days before the price increase takes place.
Now one thing that was mentioned in the question, I’m going to read it exactly: “I don’t know if it’s an issue on our end without giving a thorough explanation of when there is such a price increase.”
I don’t know much about your company, but what I can tell you from experience is that many companies struggle to communicate price increases effectively. And part of the reason is, they don’t try to sneak it in there, but they don’t advertise it or explain it as thoroughly as they should. So here’s what I’m suggesting. Ninety days before the price increase goes into effect, go on a campaign reinforcing the value that you’ve created for this organization. For example, if I’m selling to a doctor’s office, let’s say a price increase is coming, I don’t know, end of March. Beginning in January, I’m going to start to review the value that I’ve created for this organization, and I’ll do that by highlighting some of our value-added extras. I’ll have an annual business review with this customer, and in this annual business review, I’m going to spotlight a few examples throughout the year where we’ve delivered a significant amount of value.
And in doing so, we want to keep that value top of mind. We want to make them aware of the value that we’ve created, because the buyer is going to forget about the value you deliver. It’s not that they don’t want to give you the credit, they just don’t think about it. In fact, as most people are unaware of the air they breathe, most customers are unaware of the value they receive. So go on a value reinforcement campaign 90 days before the increase is to take effect.
Now, when the price increase does go into effect, I would encourage you to deliver that price increase in person. Meet with them face-to-face and explain what’s going on. So, as you meet with that customer face-to-face, next thing I would do, reassure the customer that everyone is getting an increase. It’s not just their office. It’s not just their company. Every single customer is getting the increase. Remember, your customers have to believe that it’s fair. The easiest way to demonstrate fairness is to explain to the customer that every customer is going to be experiencing this price increase. So explain that everyone is going to experience it.
Invoke a little empathy. In the description here, you mentioned that these doctors are also quadrupling their fees or increasing their fees. It’s important to highlight that and mention it to the customer. Invoke a little empathy and draw a parallel to their business. And you can do so by saying, “You know, Mr. Customer, like you, we’re experiencing increased costs, we’re experiencing wage increases, we’re experiencing inflation. And like you, we’ve had to increase our fees or increase our rates to compensate to ensure that we’re building a sustainable business.” So, invoke a little empathy and let them know that, hey, you’re doing the same thing.
We also want to provide context. And this is where I encourage salespeople to provide documentation that makes sense. For example, I’ve worked with companies in the past where they will create a one-sheet, almost like a document, with 10 bullet points that highlight the cost increases. And what they do is they don’t put dollar amounts, but they will put percentages. For example, shipping costs have increased by 20% over the previous year. Wages have increased by 27%. Think of all the costs associated with delivering the value, and then tie a percentage to it, and that way, the customer will see these percentage points and say, “Okay, well I guess a 5-10% increase seems reasonable based on what they’re experiencing.” So, provide context and also include some percentages if it makes sense for your business.
And the final tip, this is an offer that goes a long way with customers: when you present your price increase, offer an adjustment period. Now, the customer may likely ask you for a discount. They may ask you to only increase by 5% instead of 10%. In response to their objection, offer them a “ramping up” period. Say, “Okay, you know what? For the next 90 days, we will increase to the new amount, but we’ll do so in a laddered approach.” So maybe one month it’s 5%, next month it’s 10%, and in the final month, whatever it may be, you get to that actual number. This ramping up period will give them time to respond and increase their prices based on what’s happening in their business.
Well, that is the show for today. I hope those tips are helpful. Remember to maintain the right attitude and use the tactics that I mentioned.
Make it a big day.
