Nervous about changing your prices?

When it comes to raising your prices or changing your pricing model, most people approach this task with a sense of foreboding.

There seem to be so many risks involved that people often decide it’s not worth it.

This is despite there being plenty of evidence that shows the hard link between improving prices and increasing margins.

When costs are rising all around you, and your business environment is increasingly turbulent, it’s even more important that you remain agile with your pricing to make sure you are not going backwards with your business.

Common Fears

Here are some the biggest fears that I come across:

• Losing customers – your biggest fear is that higher prices will drive away customers, especially if competitor’s prices remain the same.

• Negative reactions – you might be worried about customer complaints, bad reviews or any other reputational damage.

• Not enough value – concern that your product may not deliver enough value to justify a higher price.

• Internal pushback – sales teams and frontline staff hate price increases, because they are often given no guidance on how to explain or justify them.

• Uncertainty about timing – being unsure about when is the best time to raise prices given everything else that’s going on in the wider economy.

• Lack of confidence in your pricing strategy – if you can’t clearly explain why you charge the prices you do, it’s very hard to defend.

I remember thinking all these thoughts when I was leading a business at a large company many years ago. It’s quite understandable and quite commonplace to think like this, but that doesn’t mean it’s the right thing to do.

I wish I could go back and tell my younger self what I now know about the power of pricing, and the impact it can have on the bottom line.

The truth is that raising prices – when done strategically – can be one of the best ways to increase profitability, without needing to sell more or cut costs.

The Benefits of Better Prices

There are some frequently cited examples that show that a 1% increase in prices will yield an 8% -10% increase in net profits (McKinsey). The actual outcomes will vary depending on your business situation, but the underlying principle is always the same.

Here are some of the main benefits of better pricing.

1. Improved profit margins – it’s obvious to state this, but it’s important to understand that you might also be better off financially with slightly fewer customers paying higher prices.

2. Better quality clients – whilst losing a few clients due to price rises might seem the last thing you want to have happen, in reality it often leads to a stronger, more profitable client base.

3. Increasing your perceived value – price has a tremendous effect on your customer’s perception of quality and value. When you raise your prices, this can enhance how your offer is perceived in the market.

4. More cash for growth – higher margins and better payment terms mean more money to invest in staff, marketing, product development, and systems to fuel growth.

5. Managing costs – keeping pace with inflation and rising costs ensures your business remains healthy and viable over time.

When the benefits are so high, what’s really stopping you? It’s probably a combination of fear of the unknown, and a lack of awareness of how to manage the pricing process properly.

Pricing Management is Change Management

It might be easier to think about pricing as a change management exercise, rather than as a purely tactical exercise based on a spreadsheet.

Pricing affects every part of your organization, so you need to ensure you have a clear plan and that everyone in the organisation knows what they are doing and why.

It requires communication, alignment, project management and leadership to make sure you can successfully execute the plan and avoid any mistakes or pitfalls (which are easy to do).

And it’s not a one-time event – it’s an ongoing process so you need to build your organization’s capability to deal with pricing changes now and into the future.

Making it work in practice.

Here’s a few examples of how we have helped clients safely increase their prices.

• An IT services business who saw a 28% increase in gross profits based on an updated cost model and a revised price increase process.

• An enterprise SaaS business who saw a 10.7% increase in annual revenues from price improvement using an account-based price improvement plan.

• A SaaS + Service business who saw a 6.8% increase in total revenues using an account-based price improvement plan.

• A SaaS business who experienced a 3.2% increase in average contract values following a revamp of their pricing model.

Don’t be afraid of asking for help or advice on this task. If changing your prices feels like a high-stakes gamble, having a clear plan and the right support can make all the difference.

#pricing #planning #support #process