Recently, Brian went to his local bagel store. Inside, there was a sign that read: Due to rising inventory and compensation costs, we have raised the price of our bagels. We thank our loyal customers for their continued patronage and understanding.
And we got to thinking: What a clear way to communicate this not-so-good-news message.
A simple, yet powerful, explanation goes a long way to maintaining great relationships with customers in what potentially can become an awkward situation — explaining why the same service or product now costs more.
We are all living in a world where inflation is becoming more prominent (see recent post on inflation here).
Raising prices may be inevitable; but first, before you decide to increase prices or change delivery methods, here are some strategies to consider first:
Review your sourcing contracts and big purchase items: One common cause of rising costs, in both our professional and personal spheres, is forgetting to continually validate the market price for a given product — it’s always useful to validate pricing through sourcing other suppliers. Don’t see shopping around as a betrayal or lack of loyalty. This exercise may require additional time; however, it is worth the effort to make sure that you can offer the most optimal pricing to your customer.
Validate market rate for your employees: This task is always tricky. While you certainly want to ensure that your employees are happy and well compensated, there’s a fine line between paying top dollar for loyalty and overpaying for work that can be accomplished by a less-experienced individual. It’s important that all entrepreneurs understand the nuanced skill to perform each specialized task required for the company to function and the unique value-add the task brings to your clients and end product. This exercise is more art rather than science; but if you need to increase costs due to rising employee costs, make sure you’re raising prices for the right reasons.
Invest in technology: Many companies are changing the ways they transact their business to increase efficiency and lower costs, e.g. automation, updated software, etc. We see this in a wide variety of ways — from McDonald’s kiosks to the growing use of bookkeeping applications by many small businesses. Entrepreneurs should explore the multitude of technological solutions and determine if any (or all) will help their bottom line. Of course, we never want to completely rely on an AI or robotic solution; but it would be foolish to turn a blind eye to the improvements that your company could realize by changing some of its manual processes.
Take-away: It goes without saying that if, after all the due diligence, your company must increase prices, it’s critical to communicate that effectively and clearly to your consumer base. Changing your prices is not an easy thing to do; but, sometimes it’s necessary in order to maintain cash flow and profitability. For a free diagnostic on how to review your pricing strategies and implement cost savings for your company, please contact Scott or Brian at firstname.lastname@example.org.
Co-founders & Managing Partners