You have committed to first avoiding, at all costs, passing on price increases to your most important retail partners and customers.
You've shored up your current customers.
You've created new revenue streams.
You've innovated marketing.
You've reduced overhead.
You've synergized to share expenses.
You've restructured compensation.
You've implemented automation.
You've deferred your own pay.
And it's still not working. You're still losing money.
This entire series has been dedicated to avoiding, at all costs, passing on price increases to your most important retail partners and customers. But nothing else has worked. How can you pass along increases without damaging relationships or losing business?
Ultimately, this comes down to trust. Your customers and retail partners need to be able to believe, without question, that you aren't using the current landscape to take advantage of them or looking for a slick way to increase margins. Transparency is the key to establishing trust so be willing to show them the evidence, the numbers and the improvements you've made prior to coming to them.
By now, you have done the heavy-lifting. You have added new revenue, innovated your supply chain and streamlined labor. You have made the hard choices to exhaust all options to avoid passing increases along. Now you know, unequivocally that you need to increase your prices.
You can confidently to tell your story, share the facts, and demonstrate what you have done to invest in the business and partnership. You don't need to be worried or afraid, when you are prepared and have nothing to hide.
Play Small Ball.
This is not the opportunity to bake in more margin simply because you don't want to have to come back with another price increase in six months. This is a stunningly common practice, and retailers are wary of it. Instead, raise prices only as needed and be sure to qualify, quantify and demonstrate that you are only asking for the bare minimum.
Come with Solutions.
This is an opportunity to grow from a transactional relationship into a strategic partnership. How do you do that? You show up with solutions. Once you've explained the numbers, invite a conversation about how to create a win-win outcome. Collaborate on ways you could work together to offset the cost increase you are both trying to avoid, such as:
- Add more of your products so the revenue gains on your side mitigate some of the increased costs and allow you to pass along a lower increase, or none at all?
- Leverage their relationships to help negotiate better terms with your suppliers or even help you find new ones?
- Amend your vendor agreement from Prepaid to Collect, eliminate allowances and rebates or move from private label to national brand?
Your retail partners are much less likely to default to pushing back if they feel like you're working with them. Be the champion for both parties and the business as a whole, not just your own financials.
Plan to Give Back.
What about when prices do eventually level off or soften? Be willing to offer a price decrease. Yes, it's almost unheard of - and that's why it is impactful. Make it clear to your customers that your commitment to transparency means raising when you absolutely have to and lowering when you can. If you want them to ride the tide when it raises, you have to be willing to ride it with them on the way down, too. Anything other than that comes across as greed instead of need.
Whether customers will accept an increase and pay more for your products is still not up to you. Be confident, knowing you have put in the hard work, but remember that you are asking for their approval and partnership. Be mindful of your attitude and tone as a humble delivery will play a huge role in a successful outcome.
If the retailer or large customer still denies your cost increase or is unwilling to help develop solutions with you, then what?
Get Smaller to Get Bigger.
Sometimes you may be better off to politely walk away. Selling and supplying products at a loss without an end in sight, regardless of the reason, will eventually put an end to your business. Some companies can loss-lead items for a while or use certain products to gain a vendor position to allow for them to introduce other, higher margin products, but for small-to-mid-size businesses, however, this is often not the case.
Often, smaller companies do not have the breadth of assortment or the cash position to make these investments, especially with large retail customers. If this is true for your business, consider downsizing and selling to customers who are willing to pay for your goods and services.
The same applies to your products or services. You may need to discontinue selling the ones that are losing money and consolidate into the ones that are profitable.
You will also likely reduce your COGS and expenses by doing this as you will have less SKUs to order and produce. You will have less customers to manage. Inventory carrying costs, overhead, utilities and other costs will decrease with less items and customers. Sometimes, you have to get smaller in order to get bigger in the long run.
At this point, whether you end up getting your price increase or walking away from a large customer, cutting back your assortment or reinventing your vendor agreements, you can rest assured knowing you were diligent in getting your company in shape and that you exhausted all options to help keep your business alive for your employees, investors, suppliers, customers and community.