The 2021 season promises to be another exceptionally busy season with high demand but it will not be without its challenges. As we’ve mentioned in previous articles, supply chains have been disrupted for nearly 75% of U.S companies, and our industry will continue to be impacted through 2021. We’re also seeing industry-wide price increases across all categories due to: increased transportation costs, government regulations, labor shortages, and raw material price increase on items like copper, resins/plastics, and urea/potash.
While our industry is no stranger to price increase, this year will be unique. All manufacturer brands are adjusting to increase raw material, production, and transportation costs by raising their prices. These increases are across most product categories and even on core items. These price increases and challenges are not unique to our industry. Home builders are experiencing this with lumber and consumer packaging companies like Proctor & Gamble and Coca-Cola are seeing their costs increase because of higher material costs.
So, how do these large corporations mitigate their losses and offset higher commodity costs?
Simple. Companies like Proctor & Gamble are increasing prices to their end consumer and offering fewer discounts. They are evaluating their business, pricing strategy, costs, and determining that a low inventory with an increased demand is allowing them to flex their pricing power.
“According to the Institute for Supply Management, their latest survey showed a net 40% of manufacturers are reporting that their customer inventories are ‘too low. This offers more evidence that corporate pricing power is strengthening.”
These unprecedented challenges are driving their behavior and their solution is to raise costs to the end consumer.
How should small/medium sized businesses (SMB) change their behavior and mitigate increased costs?
Simple. SMB’s should follow the lead of large corporations, manufacturers, distributors, and shipping companies by evaluating their business, pricing strategy, and costs. The good news is, there is a high demand for home improvements and consumers have extra cash on had from the stimulus money and their tax returns. This means now is an ideal time to evaluate your strategy and implement these changes.
So, how do you know when the time is right to raise your prices?
A major part of running a successful business is knowing at what price to value your services or products. The good news is that a strategic pricing strategy is something that many businesses deal with year-to-year, quarter-to-quarter, or even month-to-month. That means there is a lot of research and best practices available for SMBs on when and how to raise prices.
Business veterans and consultants across all industries recommend that you raise your prices when you meet any of these eight key indicators:
- You have more work than you can handle
- Your rates have been holding steady for longer than a year
- You need to adjust to vendor/inventory price increases
- Your cost of business is increasing
- You offer a unique product or service
- You deliver a value higher than your price
- Your competitors charge significantly more than you
- ANY TIME your business needs to adjust for profitability
When raising prices, you want to make sure that your pricing techniques are ensuring profits for your business. Leading green industry consultant, Jeffrey Scott, discusses several techniques such as a Pricing Pyramid or Minimum Throughput to help landscape and irrigation businesses price for more and better profits.
How do you successfully raise prices?
Now that we’ve looked and the when to raise prices, consider the how. Communication is key when raising your prices but so is transparency with your customers. Below you will find 5 tips for raising your prices without losing customers:
1. Build Value
You bring unique qualifications, credentials, and know-how to the project. Your team delivers outstanding service and quality work. Sell your value in your sales materials and your face-to-face presentations. Customers want you to be the expert. They are willing to pay more to work with a reliable and experienced professional.
2. Not Everyone Is A Price Buyer
In a typical market, only 30% of buyers have price at the top of their mind. The other 70% are significantly more interested in service, timing, and convenience. Price shoppers are the minority, not the majority.
3. Know Your Price-Sensitive Customers
It’s important that you know what services are price sensitive in your market. In your own business, think about the services where customers have low and high awareness, and raise prices accordingly.
4. Price For Your Business, Not Just One Customer
Don’t let one or two special customers derail the proper pricing for your business. Get your overall pricing right, and then make minor modifications for the special accounts. Take care of your loyalists, but don’t let them keep you from adjusting your overall plan when you need to.
5. Price Lock Ins/Guarantees
When a customer signs with you for a season, this helps you plan you purchasing strategy for the season and allows you to take advantage of stocking programs, rewards programs, and strategically purchase during specials. Use price lock ins or guarantees to help persuade consumers to sign on the dotted line for the season. Give them an end date of when this price will no longer be available. Be careful not to lock-in too low of rates or for too long.
What if you just cannot justify raising your prices?
Take credit for it! If you are unable to raise your prices because you did so recently or you feel your market will now allow for it – it’s the perfect opportunity to let your customers know that you are holding price increases. Reiterate the value they receive with you, highlight what’s going on in the industry/with commodity items, and take credit for holding your prices steady instead of increasing them.
Get the Guide
If you don’t have a copy, we have created a pricing guide that includes these five tips as well as recommendations on communicating to your customers, and common mistakes business make when raising prices. Get the full guide here.
Finally, rely on Central to help, whether it’s questions about inventory management, strategic purchasing, marketing strategy, or business planning. We stay at the leading edge of the industry and we’re ready to help you grow!