Never mind that the economy is feeling rather flat. If you don’t raise your prices you’re dudding yourself.
Well the carbon tax is here and Australia, as we know it, still seems to exist.
The feedback I have received from businesses around Australia is that the last quarter for last financial year was particularly quiet as clients were apprehensive about the impact of the carbon tax.
Add to that the generally depressed state of the economy (apart from mining areas) and you start to see some tough times ahead. It would be easy at this time to send a message to your clients that you feel their pain and, as a result you are going to freeze your prices.
My advice to you is not to do this. Your expenses keep going up. Your rent; your fuel; your insurance; your wages and most of your other expenses. If you skip a price increase this year, it is almost impossible to ever recover that skipped increase.
I also worry about the message it sends to the marketplace when you don’t increase your prices. It seems unprofessional to me and clients want to deal with a professional firm.
At the very least in tough economic conditions when the market seems depressed putt hrough a CPI increase.
The real message here is to deliver exceptional service and charge fair and reasonable prices for it.
Do not undervalue the work that your firm provides and you will be able to continue to put through those annual price increases and, if you work hard at it, clients won’t even question some increases a few per cent above the inflation rate.
If you can push for a 5 percent increase over a few years, it will make a dramatic increase to your bottom line.
As a quick comparison, a 3 percent annual increase over five consecutive years is a cumulative increase of 15.9 per cent.
A 5 per cent annual increase over five consecutive years equates to 27.6 per cent.
Imagine having no price increases for five years then trying to explain a 27.6 per cent increase!
A long time ago I was in just that situation. We had had no price increases for several years and then a few factors combined that had a severe impact on my bottom line.
My solution was to put the prices up by only 15 per cent. I sent out letters and emails to clients explaining why we needed such an increase.
I fielded phone calls. I had our staff speaking with valued clients. We didn’t lose any clients but we had to spend a lot of energy to ensure we didn’t.
All that hard work would have been alleviated by simply putting through a CPI price increase each year. The irony was that the 15 per cent was actually less than the total price increase if we had increased our prices by just the CPI each year.
Not only did we end up with a lower final price but we missed out on that additional income each yea rand we went through a whole lot of pain to increase our prices. I learnt my lesson there and then, and every year since then I have ensured prices go up by, at the minimum, the CPI.
No client has ever questioned it.
Remember that clients will remember the pain of poor service or a broken network long after they will remember a CPI price increase.
If you can focus on delivering the service the price increases will be a standard part of doing business.