Inflation is soaring, which means that all companies are scrambling to avoid losses in both their supply chain and the pricing of their products. Everything from labor and logistics costs to gas prices is soaring to an epic 40 year high. Inflation sits at 7.9% at the time of this writing, and with the invasion of Ukraine by Russia, it’s looking like things are going to get worse before they get better.
So what is the proper response to this to avoid dipping even further into the red? As a small business owner, it’s essential to know what blunders not to make.
Spreading the Cost Evenly Among Products
It’s tempting to respond in kind when facing price increases across the board, but it may not be the best approach for your customers or your business. Spreading the cost of inflation evenly across all your products or services may hurt you by discouraging customers from purchasing from you.
While it requires more work, it may be better to analyze your costs and see where inflation is exerting the heaviest pressure on you. Once you have an idea of your pain points, you can adjust pricing on specific products and services according to what makes sense, given your costs.
If a client sees that your prices are up across the board, they may be deterred from your services. If the cost of your services remains the same, but you charge more for travel time because gas prices have increased, that same client would likely concede that such an increased cost to them makes sense.
Asking for Big Price Increases and Accepting Small Ones
You know how little white lies work, right? This method of asking for an 11% price increase to cover inflation and then walking that back to 5% breeds mistrust. First of all, it opens up the client’s mind to the idea that price increases are negotiable, which will teach clients to barter with you in the future. But it also opens their mind to the idea that if you will walk the price back 6%, why should they accept any increase at all?
It’s always best to be straight with clients on your needs; that way, they aren’t tempted to doubt you. If your clients doubt you, you’ve already failed them.
Not Trusting the Sales Effort
If you have employees in sales, or if you are in charge of your sales efforts, you know about the give and take involved in negotiations for things like price increases. It’s pretty essential with definite cost increases for your company that your increases are not negotiable for your client.
Your sales team needs to feel confident that they are providing accurate and saleable numbers to your clients, and that’s hard to do if terms are flexible. Further, if you need to increase prices due to inflation, that’s not something that can be mitigated with longer deals or sales tactics. You need to increase costs to keep doing business sustainably.
Staying solvent and profitable is the most important thing for you and your clients. You won’t be doing any favors if you allow yourself to fall into debt and your business fails because of it. It would help to build long-term relationships on trust with your clients, which always means being upfront and honest about price increases and why they happen.
