You’ve overcome the challenge of setting those initial prices, however operational – plus general living – costs have risen, which is impacting your bottom line. Sound familiar?
Price increases have always been a part of doing business, however with inflation on the up and up right now, you may need to have these conversations with clients and customers for the first time sooner than expected, more often, or earlier on in the financial year than you had originally planned.
We get that this can be a little daunting, so below are some of our tips for making this process a little smoother.
Firstly, is it okay to up your prices?
In short, yes. Just so long as the decisions you make are backed by numbers or genuine reasons, as it’s going to be difficult to gain buy-in from existing clients and customers otherwise.
The best way to determine whether a price increase is needed, is to take a look at your budget and forecast (which means the latter should always be up to date, too!).
If you can see that your costs have exceeded what you budgeted for between January and August 2023, for example, and your outgoings have been exceeding your incomings, it’s time to build this into your pricing.
The beauty of cloud-based accounting and bookkeeping software is that you can easily see which expense categories are eating into your profit the most, too.
While they will vary depending on the nature for your business, some of these categories could be:
- The ingredients or materials that go into the products you sell
- Logistics and customs related fees
- Equipment that you need to create products or provide a service, such as building related tools, machinery and technologies like laptops
- The subscriptions that are essential to the smooth running of your business
Office related costs, such as utilities and rent
Consider a value-based strategy
We’re very much advocates of following a proven formula when setting initial pricing, because mindset alone all too often sees us doubt ourselves, and ultimately undercharge.
A numbers-focused approach is important when it comes to price increases too, however highlighting the ongoing value you’ve added to the client’s business on a case-by-case basis can carry a lot of weight.
Examples of this include:
- Reflecting on instances where you’ve performed services that extend beyond your contracted scope of work (SOW).
- Putting a monetary figure on the additional time you’ve provided over a particular period.
- Sharing of the ways your business has contributed to the client’s successes.
Outlining the additional value you’ve provided throughout the course of your partnership, and highlighting that you’ll only be able to continue to provide this level of service by increasing your fees, will make these conversations more seamless, and help to ensure you maintain a positive working relationship.
Tip: If you’re looking to set your prices more accurately, download our free Achieving Financial Success in The Creative Industries guide, which includes details of our recommended formula.
Best practices for communicating the changes
In addition to highlighting the value you provide to your clients, be sure to approach the subject of price increases with them in a sensitive and well planned manner.
Create a written email or physical letter that includes details of the numerical increase, outline the ‘why’ behind your decision, so that they know this has been given thought and you’ve not simply plucked a number out of the sky, and the date the new price will come into effect.
Providing sufficient notice is key too. Aim for at least 30 days, as this will allow them to make any internal changes on their end, such as updating their budgets and forecasts (and this is also something you should look to do if a supplier is changing their fees).
If you regularly meet with customers in person or speak with them on the phone, it is worth either beginning these conversations in this way, or following up on your written communication with them in your next meeting or during your next phone call.
Either way, having something ‘on paper’ is important, and you’ll need to amend existing contracts, too.
Need a hand?
Discussing and determining pricing can be both overwhelming and challenging, no matter your sector, location, or experience in running a biz.
In good news, we’re here to help you navigate this! Simply book a complimentary call in here and we’ll provide some tailored advice that reflects your goals, and your organisation.