For many companies their overheads are increasing each year yet they daren't increase their prices. It's hardly surprising that many companies see their profitability declining. So to counteract that they run faster, think less and guess what, actually achieve less. It's so easy to come down in price and so hard to go up.
Why don't we increase fees and prices? The simple answer typically is fear. Chris Merrington of Spring 80:20 shares his thoughts on how to increase fees and prices.
Pricing is the number one way for a company to optimise profitability far more so that cutting costs, overheads or selling more.
Here are 8 practical steps towards increasing your fees and prices. These are a small selection from those I cover in my workshops.
1. Understand what your client really values by asking them. Ideally you need to be clearly differentiated with a compelling value proposition that few other businesses can offer.
2. Does your client see you as a 'supplier' or as a trusted partner? Are you dealing with a decision maker or someone who reports to a decision maker? Get access to the decision maker without upsetting the direct report.
3. Pricing is more of an art than a science. Take more time to consider your pricing, options and positioning. Don't simply do cost plus a mark-up or charge the same as everyone else. Think about volume deals, think about 'meal deals' like the fast food chains, think about variable pricing depending on workloads and timing like the airlines.
4. Today's price is not simply today's price. It will also influence how much you can charge next year and so on. Setting a price too low at the start of a relationship sets precedents which you may later regret.
5. Pricing is closely related to your confidence. Being busy with lots of work from existing clients will build your confidence. By having a robust pipeline of existing and new business will also give you confidence to be more bullish in your pricing.
6. Beware of having too much business with any one client. I see this so often where businesses are over-dependent on one or two clients. Sometimes where one client is 50%, 60% and even 80%. This is so dangerous. No client bigger than 10-15%.
7. A common ploy by clients is to promise lots of future opportunities in exchange for a special introductory price or they request a first time discount. First time discounts will typically become permanent discounts. Promises of future work can be a tactic to drive your price down or could be a great opportunity for lots more business - it's up to you to assess which it is.
8. Don't leave pricing to junior people. The board should take responsibility for pricing. It's too important to be delegated to someone inexperienced or lacking commercial acumen. Once a low price has been presented to a client it is very hard to retract it.
Warren Buffett said "price is what you pay, value is what you get" Take more time to consider your value and then your prices, it will be worth the time and effort.
By Chris Merrington, author of "Why do smart people make such stupid mistakes?" A practical negotiation guide to more profitable client relationships for marketing and communication agencies, sales teams and professional service firms. Chris helps companies be more profitable, confident and successful. Chris runs in-house Masterclasses and Workshops with directors and sales teams in the areas of Negotiation, Selling as a Trusted Adviser and Winning New Business.