High inflation rates have been a reality for over a year. Whether you look at food, fuel, or other costs, the price of everything is going up. Central banks are doing what they can to combat the problem. In the meantime, salespeople have a unique capability to combat inflation: selling price increases.
Why Price Increases Are Powerful
Let’s imagine two companies selling similar products, like home air conditioning units. At first, they both make a gross profit of $250 per unit. When high inflation hit in 2021-22, suddenly, those profit margins shrank to $200. Higher prices for other supplies cause the shrinkage the companies have to pay for, like office goods, computers, and vehicles. One company implemented higher prices and raised its profit margin per unit sold to $275. The other company decides to do nothing hoping inflation will go away.
At the end of the year, the company that raised its prices enjoyed several benefits. First of all, they have a far better profit for the year. That means they can spend more on bonuses and improve customer service standards. If their competitor takes no action for another year, the competitive advantage will continue growing.
Why Don’t Salespeople Focus on Price Increases?
The business value of successfully raising your prices is powerful. Despite those benefits, very few salespeople are eager to pursue price increases. There are a few reasons for that. Sales incentives typically favor winning new accounts, so time spent attempting to get a price increase may feel wasted. Further, salespeople may not see the value or rationale for a price increase. When a salesperson is not sold on the purpose of price increases, they are unlikely to act.
Finally, proposing a price increase usually feels uncomfortable. This discomfort is partially irrational. Yet it is also partially grounded in risk. If you raise your prices, you might anger customers who may seek out other options. Left untreated, the unwillingness to administer moderate price increases erodes profitability over time and makes it tough to remain competitive.
Selling Price Increases Step By Step
The path to successfully selling price increases as a salesperson is fraught with dangers. Use this guidance to minimize the risks.
Step 1: Get Clarity On Pricing Decisions
Pricing decisions work a bit differently in every organization. Some salespeople, for example, have the discretion to offer discounts to retain customers or close a sale. Increasing prices may be a different matter altogether. Ask management about increasing prices significantly if your company has not updated prices in over a year.
Once you find the pricing decision maker internally at the company, ask them about pricing plans. Selling a price increase tends to be most successful when the salesperson has substantial preparation time. Proactively engaging with management early is essential. In all likelihood, you may discover that managers were already thinking about pricing changes.
Step 2: Review Your Pricing For Increase Opportunities
Assuming you have multiple products and services to sell, it is wise to customize your price increase decisions. For instance, increasing prices on a product that sells at a low volume will not help the bottom line much. In addition, consider whether contract-based pricing may constrain how and when your prices are changed.
Your mission in this step is to find two to three opportunities for price increases. Start with your products and services and then identify specific customers second.
Step 3: Get The Price Increase Quick Win
Typically increasing prices is relatively challenging, but there is one exception to this rule of thumb: new customers. Unlike your current customer base, new customers have little or no knowledge of your historical pricing. Therefore, do yourself a favor and increase prices for brand new customers first.
Implementing this step will help to support your case for other price increases – stay tuned for details in the following steps.
Step 4: Create Price Increase Campaigns For Current Customers
The following approach suits companies selling high-value products to businesses or institutional customers. In this setting, a salesperson may have a book of accounts that she regularly works with. These longer-term relationships give you the understanding you need to present a price increase.
To build your price increase campaign, use the following steps:
- Identify Wins
Start by finding wins for each customer you serve. This could be something like consistently delivering your service by the deadline. Or you might have taken extraordinary steps to meet a customer’s special requests. In each case, list the wins you’ve delivered for the customer.
- Find and Fix Problems
Poor customer service is one of the fastest ways to fail in a price increase conversation. If a customer has pending issues or unresolved complaints, price increases may fall on deaf ears. Search your email archives, check your customer relationship management (CRM), and ask your customer service colleagues for support. Fixing problems will tip the odds of a price increase in your favor.
- Design Your Price Increase Presentation
This step is vital if your price increases are substantial. If your prices are significantly more than inflation, creating a presentation and meeting with your customer is essential. The next part of the process explains this presentation further,
Step 5: Develop and deliver the price increase presentation
Presenting a price increase successfully requires knowledge of the account’s history and your plans. Use the following prompts to build the price increase presentation.
- Review The Account
Set the stage by reviewing your history of performance for the customer. Leverage the wins and customer service improvements identified in previous steps here.
- Present The Price Increase
In this stage, describe the price increase for the specific products and services that apply to the customer. In general, it is wise to give 30 days or more notice to the customer before the price increase takes effect.
- State The Reasons For The Price Change
In this section, briefly explain the rationale for the price increase. You can reference the high level of customer service, planned improvements you will be offering (e.g., a new feature that will be released soon), and macroeconomic factors (e.g., cost of labor and supplies increasing).
The customer may want to negotiate the price increase, especially if it is significant. For larger accounts, considering a negotiated increase – like 7% instead of the 11% you planned – may be worthwhile. You may accept a minor increase but mention that prices will be reviewed again in 12 months because all of your new customers are already paying the higher price.
The Fastest Path To Price Increase Profitability
Increasing prices for current customers is possible, but many people find it challenging to do. The best way to grow your business with higher prices is to focus on new customers. Peak can help you find successful salespeople to join your organization. Just imagine you added two-star salespeople in the next 90 days, and they added a dozen accounts at your newly increased prices. That bottom line improvement could change everything for your company!
Contact Peak today to discuss your sales talent needs today – it’s one of the fastest ways to beat inflation!