3 Ways to Communicate Increased Pricing to Your Clients
Tom Stimson
September 9, 2022
Blocks are in a row spelling out the word prices, on top of a newspaper with graphs.

In a recent blog post, I advised that raising prices may not be the best move for your business. But in some cases, there’s no getting around it.

The fact is, you have prices that have needed to be raised and probably need to be raised again. If your biggest objection to raising prices is customer pushback — and that’s what I hear the majority of the time — then this blog post is for you.

Owners think there’s going to be customer pushback because their salespeople tell them that’s what’s going to happen. But the salespeople don’t know there’s going to be an objection. They just expect there will be.

Business is back, and clients are digging out old quotes from 2019 and before. They’re sending that old quote to you and saying, “We want to do this job again. Send me an updated quote.”

What they’re really saying is, “I want to do this again at 2019 prices.” They’re hoping you’ll take the bait and feel bound to your old quote. They’re signaling that they’ll be comparing what you send them now to what you sent before.

Not every customer needs an explanation or pushes back on cost increases, but many do. They deserve an explanation, but which one?

Honesty is the best policy, but if the correct response to a single-level objection — price — has two answers, you’re going to need something more than, “Gee, costs are higher, aren’t they?”

If you’re still throwing out traditional line-item quotes, there’s a much higher risk you’re going to get customer pushback when you raise your prices. But not every customer looks at every price. And the customers who do look at prices don’t look at the same prices. So you never really know where the pushback is going to come from. Most often, I see less pushback on labor than I see on equipment prices, but your experience may be different.

What can you do to avoid long, detailed explanations about the complexity of pricing? You have options. When you get pushback, here are three things you can do.

3 Ways to Communicate a Price Increase

Infographic: ISL - 9/12

#1: The Lookback

The most common problem is that the customer’s baseline of understanding is out-of-date pricing.

You can take care of this in a cover letter or email you send out with your proposal. It doesn’t even need to be in the proposal proper. You’re pointing out the elephant in the room from the get-go.

Don’t emphasize or call out increases in price specifically, but instead call out the changes in how you price things. Start with something like, “As you might expect, the pandemic has caused changes in pricing. We’ve had to change the way we charge for some things to better reflect cost and availability.”

Then help them understand where you’re coming from. “We’re very sensitive to the difference between what this job cost you in 2019 and what it costs now. We’re going to do our best to help you understand where those differences are.”

Hopefully, you’re also changing some things about the way you do proposals. You don’t want to send them a line-item proposal that lines up with the 2019 example for easy comparison. If you do, the customer can see exactly where the changes are and will have an easy time choosing specific points of emphasis for pushback.

Instead, you can explain areas of change. “You’ll find there aren’t a lot of changes in the cost of your equipment in Area A, but there are increases in other areas because we’re using new technology due to streaming events, etc. And there’s obviously some cost increase in labor and availability.”

Then you might explain that you’ve increased some of your discounts to compensate for the cost-of-labor increase.

Basically, the cover letter outlines where the changes are occurring, but also pulls back the curtain a bit to help the customer understand how messy pricing really is.

The situation isn’t easy for anyone. Your cover letter is a “Let’s get on the same page” alert. You’re just calling it out ahead of time.

If you’re successful in presenting the lookback technique, you greatly reduce the chances that the customer will zero in on an individual item and make it a negotiating point.

You’ve laid the groundwork for having a more sophisticated conversation about scope and budget rather than individual prices of individual products or services. Now you can have a mature conversation about budget. You always want to say to the customer, “Your budget is your budget.” And if it’s the same budget as 2019, you can explain why it won’t get them the exact same scope as it did then, but you can offer multiple solutions that fit within their budget today.

#2: The Not-to-Exceed Promise

This technique is for the customer who understands the need for price increases but has a limited amount to spend. In other words, they’ve given you permission to charge differently, but they still have a limited budget.

The Not-to-Exceed Promise is a great approach to quickly reassure the customer that their budget is okay.

You’re effectively saying, “I know you can’t exceed your 2019 budget of X. I promise I won’t exceed that budget. Here’s what we can do, and here are my recommendations.”

You give the customer a baseline of what they absolutely have to have, the fundamentals of the package, and then reserve a bit of budget for them to have a few options. They get to make choices on the bells and whistles that give the job the extra finishes.

You allot 80% to 90% of the Not-to-Exceed Budget on the minimum necessities, but leave 10% to 20% for the customer to make choices.

It’s kind of like buying your first home in a housing development. You get to choose the colors, the trim, the doors, and what kind of sink is in the kitchen, but it doesn’t change the overall price of the house.

This is a nice way of showing customers that there’s nothing wrong with their budget. Their budget is not too small.

There are a lot of buyers coming back into the marketplace who haven’t bought a big show in a couple of years. You don’t want to make them feel like their money isn’t welcome. The Not-to-Exceed Promise tells customers their money is always good with you.

#3: The New Benefit Explainer

The third approach is for the customer who needs their 2019 scope of work, and they know it’s going to cost more. But they need to know why.

You might think you can just say, “Everything costs more, so we’re going to add 30% to your quote.” But if this is all you tell the customer, you’re asking them to question you: “Does it really need to cost 30% more?” You have to justify your increased costs, or it sounds to the customer like you’re gouging them because the supply chain is gouging you.

You can communicate increased costs in a better way. A good approach is to explain new benefits the customer receives at the higher price. When you explain that things are going to cost more, also let the customer know you’ve made some improvements.

Maybe the budget for your video package went up because you’re using new technology, and you’re including new capabilities that are necessary in today’s world. Focus on the upside. You’re using LED screens instead of projection, which gives the customer more floor space so they can have less cramped seating. Or maybe you’ve reduced the cost of overhead rigging. Let the customer know you’ve found more cost-effective ways to do jobs.

The implication is that if you did things exactly the way you did them in 2019, the job would cost even more. But you’ve re-engineered how you do certain things to keep cost increases from being too high and to add new benefits.

Another common New Benefit Explainer is that although there’s a so-called labor shortage, you need to quote more labor than you did in 2019.

The chances of losing crew — having people come down with COVID, for example — puts the show at risk if you don’t have enough crew members booked. By having more crew and show positions, you can narrow the scope of work for each worker, making it easier to find someone with any particular skill set.

The advantage for the customer is they have more responsive crew members, because they’re responsible for fewer jobs. And with more crew, a big benefit to the customer is that you can say yes more often. “Remember that time when we couldn’t say yes because we didn’t have enough team to make it happen? Well, we can say yes now.”

Consider what you’re doing differently, extract the benefit to the customer, and explain that benefit to them.

“Yes, the job is priced higher than it would have been in 2019, but it’s not as expensive as it would have been if we hadn’t made these fundamental changes.”

Where to Start

Remember, these techniques are necessary because we all have customers coming in unfamiliar with current pricing and who need to be re-educated. One of these techniques isn’t better than the other. You’ll need to master all three because which one you use depends on which customer walks in and what their situation is.

Try the technique that best matches the job you’re quoting. It’s that simple.

About Tom Stimson
Tom Stimson MBA, CTS is an authority on business and strategy for small- to medium-sized companies. He is an expert on project-based selling and a thought leader for innovative business processes.
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