Explore by Topic
Explore by Type
C2FO Powers Early Payment Programs for the World’s Largest Companies.
Discover expert insights on working capital, cash flow optimization, supply chain management and more.
We believe all businesses can and should have equitable access to low-cost, convenient capital to grow and thrive.
Raising prices is necessary for most businesses, but buyer churn isn’t — as long as you’re proactive, honest and adaptable when breaking the news.
Steep inflation and higher borrowing costs mean that many small to midsize businesses may have no other choice but to raise their prices. According to a 2023 report by Bank of America, almost 9 out of 10 entrepreneurs in the United States say that inflation is impacting their business, with 60% increasing prices in response.
Even when your production, material or overhead costs aren’t growing, your business may be forced to reconsider pricing to keep up with changing customer demands, industry trends or growth targets.
But raising prices can also raise concerns about how a price adjustment may affect your client relationships and whether it could cause customer churn. After all, research suggests that finding a new buyer costs significantly more than retaining an existing one.
Most buyers understand that the goods and services they purchase are subject to price increases from time to time. However, the way you approach the announcement can make the difference between your buyer adapting to the change or seeking a competitive alternative. Before notifying any buyers of a price increase, here are eight strategies to consider.
Price increases are best approached with a comprehensive knowledge of your business’s finances. Regularly forecasting your cash flow, managing your budget and conducting market research will help determine whether you actually need to raise prices and by how much. Make sure that you’re thorough in your financial analysis, tracking everything from required staffing levels to anticipated price increases for your packaging materials.
These practices also allow you to stay proactive and avoid the need for sudden price hikes that may catch your buyers off guard. Your due diligence will also provide sound financial data, which you can later use to validate the decision to buyers.
Create a business-wide communication plan, paying particular attention to sales and service representatives who engage with buyers regularly. It’s important that buyers hear consistent information about the change. Miscommunications may spark mistrust in your buyers, potentially harming the relationship. Marketing personnel should also be a focus, as they need to update materials — including your website copy, emails, slide decks and public price lists — ahead of time. Your financing, accounting or production team members might even have ideas on how to structure price increases strategically or avoid them altogether.
Provide your buyers with at least two to three months’ notice when announcing a price increase, giving them time to adjust their budgets or find alternatives if needed. This shouldn’t be a problem if you create regular budgets and forecasts because you’ll be able to anticipate an increase well in advance. A generous window can also work to your advantage, giving you time to negotiate an upsell, such as offering a lower price for contract extensions. If any of your buyers are large enterprises, investigate whether they have rules about timelines for supplier price changes before you deliver the news.
Your buyers will most likely receive the news more favorably if they hear it directly from you — not from an invoice or an unexpected business interaction. Once you’ve solidified a pricing strategy and created a businesswide communication plan, reach out to buyers with a formal letter. Rather than sending a generic email, consider notifying each buyer separately with more personalized correspondence. And keep in mind that using neutral terms, such as “price update” rather than “price increase,” can help soften the message.
Why are you raising prices? Being detailed, clear and explicit about your reasoning will help maintain buyer-supplier trust. Buyers usually appreciate the transparency and are more likely to accept changes knowing that the decision is justified and well-considered.
It’s not enough to tell buyers that prices are higher because of general inflation and higher operating costs. Instead, provide them with specific numbers to back the adjustment. For example, if you need to raise prices due to a materials shortage, tell the buyer the exact percentage that materials have increased in price, how this has affected your bottom line and how you came up with the new number.
When you’re explaining a price increase, emphasize the value you bring to your buyer. In most cases, you’re probably raising prices to ensure that you can continue offering the best product or service quality possible — something that’s in their best interest, too. Avoiding apologetic language in your announcement can help communicate confidence in your offering and decision, focusing on the positive rather than the negative. Here are some examples of value propositions you might present:
Many businesses use a “take it or leave it” approach when navigating price fluctuations. However, having more flexibility can not only improve buyer relations but also give you more revenue opportunities when buyers may otherwise walk away. Some options may include:
The biggest takeaway here is to collaborate with buyers and be willing to adapt to their preferences where possible. Some buyers may choose one price increase approach over another, while others would rather adjust a product’s size or material composition, for example, rather than pay more. If you have any firm fixed-price contracts, see if those buyers can offset the agreement by expanding order volumes or product promotion.
Even if your business can’t afford to negotiate a price increase, make sure that your buyers understand you are available and willing to talk. Sign off your announcement by letting them know you can answer questions or provide more information about the price increase. Make higher-level staff such as business owners and executives available for meetings. Lastly, follow up with buyers closer to the price increase date to make sure you’re on the same page.
Raising prices is a normal part of running a business, especially when inflation and other economic factors are affecting your balance sheet, but this doesn’t necessarily make the process easy. Your clients have their own financial interests at heart, which means that you always run the risk of losing business regardless of how carefully you approach a price increase.
Remember that even though you’re asking a fair price for your offering, there are bound to be some negative reactions. When in doubt, showcase your value as a supplier and stay flexible. Sometimes being willing to compromise is more cost-effective than losing a buyer altogether.
Learn more about early payment programs as another way to improve cash flow.
In this article:
The chief financial officer’s role is rapidly changing as businesses place a greater focus on values-based activities and reporting.
Strengthening the ties between your business’s procurement and finance teams is a smart way to improve your balance sheet and supplier relationships.
Subscribe for updates to stay in the loop on working capital financing solutions.
4 min read
5 min read