I’m Writing to Inform You of a Price Increase

by: Joe Connelly (VP Sales)

Most sales people dread telling customers about a price increase. Along with cold calling, it is perceived as one of the toughest jobs faced by a sales person. It’s believed to be fraught with danger, potentially causing annoyed customers to look for alternatives, cancel orders or start designing you out. It is also a gift to your competition of an opening into an established product sector. If so fraught with danger, should prices ever be increased, and under what circumstances?

The main reasons for increasing prices are: (i) foreign exchange considerations (i.e. appreciation of the $CDN vs. selling currency), (ii) the initial cost-of-goods sold (COGS) target was too low compared with today’s reality, (iii) the business unit needs to make more profit (or less of a loss!), and (iv) you want to encourage customers to move away from an end-of-life (EOL) product to a newer version. No matter the reason, what is vitally important is how the decision is communicated to customers.

Communicating a Price Increase

Some guidelines to follow are:

  • Avoid changing prices on backlog orders (do it only for new orders)
  • Give customers a reasonable notice period, and potentially allow them to stock up at the current price (conveniently, this can temporarily strengthen the order book)
  • Support the sales team by ensuring that executives are available for calls or meetings if customers decide to escalate the decision
  • Be prepared to negotiate with key customers if necessary – consider deferring price increases or keeping prices flat for strategic customers if the long term relationship is at risk
  • Get your story straight, with solid facts, and ensure all customer-facing personnel from CEO on down deliver a consistent message
  • Try to provide some sugar to coat the bitter pill: a new product announcement, improved customer support, enhanced co-op marketing funds, a revised volume-discount scale, a special promotional offer, extended payment terms, etc.

With the significant shift in the $US to $CDN exchange rate, plus spiralling energy and transportation costs, thinning profit margins for Canadian companies have made price increases relatively commonplace lately (your customers are probably doing it to their customers!). Just ensure that the long-term health of the business is considered fully before short-term price changes are implemented. If handled professionally, improved margin can be realized without damaging your customer base. Plan ahead and be willing to bend a little for the big customers. Like any delicate operation, price increases must be performed with a little finesse!

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