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Raise Prices Without Losing Customers

Sometimes you simply need to raise rates to keep your business viable. Use these five strategies to avoid a customer exodus.

Companies worry about raising prices because they fear customers will leave them. This is a real fear and is often based upon past experiences.

However, when you face increases in operating costs, raw materials, labor expenses and so on, at some point you may have to raise prices. This isn't for purposes of gouging customers or skimming bigger profits--it's a matter of survival.

Survival means getting it right, though. You need to keep up your volume of sales--avoiding a customer exodus--while using a price increase to sustain the necessary margin.

When you do need to raise prices, try using these strategies.

1. Avoid 'Death by a Thousand Cuts'

If you have decided that conditions are such that you need to raise prices, then set a raise that you can live with for as long as possible. Customers can better deal with a price increase if they know the new price will hold steady for a while. When make frequent, little increases, you create uncertainty--and that has more adverse consequences a single large raise that customers can plan around.

2. Offer Short, Clear Explanations

When explaining a price increase to customers, make certain that you have a short, straightforward, and common-sense explanation. You and your sales people will be asked, so make certain that everyone has the right (and same) answer. Perhaps it's about the increased cost of health insurance for your employees; maybe raw materials have increased in price, or you're getting hit hard by fluctuations in shipping rates. Just know how to explain your reason.

3. Play Favorites

You should personally contact some of your most important customers--those who are larger or more strategic, or both--to explain the change. It's a mistake to let them get the news through an email or a sales person. A price increase, even if understandable, is still going to be seen as bad news--so it should be communicated executive to executive, not couriered by front-line people.

4. When Possible, Offer Options

Sometimes you can change service agreements or performance clauses--or even product features--to offer some price relief. If these options are available to you, you should consider opening up the conversation. When "nice to have" bumps up against "need to have" with a price tradeoff, customers often change their definition of what they do in fact "need to have."

5. Manage the Internal Drama

The employees who have the greatest amount of daily contact with your customers will hear the most feedback about any price changes.

They may have already faced regular pressure to reduce prices, and feel they did well to keep rates stable. So now, when you ask them to pass along a price increase, they may, well, freak out.

Don't just ignore the internal drama. Instead, manage it: Your first and best explanation needs to be for your own team. Your people need to understand the issues, the tradeoffs you considered, and the message.

There's just one thing you cannot do: Tell them one story and then ask them to tell customers something different. You need to have a single explanation--and by the way, it needs to be true.

Price increases are a reality for many businesses. With a plan you can keep your customers and keep your margins.

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Last updated: Jun 19, 2012

TOM SEARCY | Columnist | Founder, Hunt Big Sales

Author, speaker, and consultant Tom Searcy is the foremost expert in large account sales. With Hunt Big Sales, he has helped clients land more than $5 billion in new sales. Click to get Searcy's weekly tips, or to learn more about Hunt Big Sales.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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