Announce a Price Increase…Why?
I have written before on the importance of intelligent pricing and its impact on profitability. A question I often get is, “Should I announce a price increase?” My answer is, “No.”
Why would you want to? Why call attention to a price increase and invite questions or shopping around by clients?
Don’t get me wrong, I am not suggesting that you need to apologize or hide the fact that you must increase prices to keep up with inflation. On the other hand, you don’t need to raise the “red flag” either. Certainly, if you have a fixed or contract pricing with a customer, you would be required to inform that buyer, but that does not apply to the bulk of business for most of us.
I have always believed in two principles for pricing:
- Set up your estimating/order entry system properly, and make sure all cost and mark-up parameters are correct. If you don’t feel competent to do it yourself, ask for help. (At Allegra Network, this is a service we provide to our franchise members.)
- Annually or semi-annually adjust all pricing parameters to account for inflation. If inflation is running at 3 percent, take a global 3 percent increase on January 1, or 1.5 percent on January 1 and another 1.5 percent on July 1.
You can follow the Consumer Price Index; or better yet, you should do your own calculation on your variable costs in rent, labor, etc. and take the increase that you are going to experience in your cost structure. In most estimating systems, you should be changing paper pricing as you get updates from your supplier throughout the year.
I prefer making a smaller percent increase two or more times during the year. Either way, your customers will rarely notice because very few jobs are exact repeats in quantity or parameters unless the work is contractual, as noted above. And, if you have contract pricing, you should negotiate inflationary increases into the contract or you will eventually erode your margins.