August 22, 2022

Why your service business should increase its prices and how to do it

Text with price increasing up arrow in front of opaque image of coins

These days everything is expensive. Fuelling your van is expensive, heating (or cooling) your office is expensive, buying your groceries is expensive, even buying a beer seems to cost a bomb. It appears that in every walk of life and in every industry, costs have gone up.

It’s certainly the case when it comes to the price of materials, with costs increasing as much as 27% in the last year. Factor in the cost of inflation, which is rising at its highest rate in 30 years, and it makes for a pretty daunting prospect.

So, if you’ve got a service business or you’re an independent contractor, you must have increased your prices then…right? Maybe not.

The problem is, many tradespeople are apprehensive about upping their prices. It can seem like a daunting prospect, not only because it might mean that you lose customers, but also, especially if you’re part of a small team, losing customers can feel like a personal slight and can make you feel undervalued.

So what should you do? Should you be putting your prices up and how are you supposed to keep up with the ever-shifting cost of materials? Let's take a look.

What will happen if you increase your prices?

First up, let's be clear, at some point you’re going to have to put your prices up. With rising inflation, changes in the market and the growth of your own business, price increases are an inevitable and unavoidable part of running your own trades company.

So the real question isn’t whether you should increase your prices, but when. Perhaps even more importantly, you need to consider how you actually go about implementing a price increase.

There are many different factors to consider when increasing your costs, most importantly how your new prices will impact your customers. The good news is that more often than not if done correctly, you shouldn’t lose too many customers when your prices go up. And, even if you do lose customers, there are plenty of opportunities to take on new ones.

So what happens when your prices go up?

The first thing to understand is that losing customers is not always a bad thing. Most of your customer base will value your service because of the quality you offer and will accept a price increase because they want to continue to use someone who they know and trust will do a good job. Furthermore, those customers you do lose may not be worth hanging onto in the first place.

If you have customers who are trying to drive a low price or get a cheap deal, these are the customers who also often cause the most problems. If they are only interested in the price, they tend to be less willing and understanding of the value of higher value and premium products.

Cheaper alternatives or less expensive options are more likely to break, wear and degrade and result in a less impressive finished product. This results in the customers who go for these options becoming unsatisfied, which makes them more likely to complain when there are issues.

What’s more, amongst your more loyal customers who see the worth in high-quality products and value your expert advice, it is far easier to cross-sell and upsell a better service. This means it’s possible to make much more from these customers than those looking for a bargain, and also means these customers receive a better service and finished product.

What all this equates to is that losing the low-paying customers may actually be beneficial. By dropping these kinds of customers, it makes room for you to take on more customers that are open to paying more for high-quality products and services. By increasing your prices you market yourself at a higher value.

The added benefit in the current market is that the demand for tradesmen and women is very high, with demand up by 50% since 2020. This means that finding new clients to take on shouldn’t be too difficult - that is if you want them!

You may find that having reduced your output, you enjoy the extra time that has been freed up, allowing you to spend more time with family. You may decide that you want to pursue other interests or spend more time doubling down on developing your business. There is much opportunity.

The long and the short of it is that increasing your prices and even losing customers doesn’t need to be something to worry about but is actually a great opportunity.

How do you increase your prices?

Now that we’ve convinced you that increasing your prices isn’t so risky, the next thing to consider is how best to announce these changes. It’s time to consider some of the dos and don’ts of price increases.

1. Give some warning.

One mistake that can be easy to make is not giving your customers enough warning before you implement a price change. If you’re going to increase the price, your customers need time to take it on board and decide whether they’re going to stick with you. If you blindside them with a sudden increase they’re more likely to respond negatively.

By providing ample warning your customers will have readjusted their expectations so by the time the increase is implemented it will seem like less of an issue.

2. Provide a genuine explanation

Sometimes when you’re operating as a business it can be easy to overcomplicate things.

When communicating with your customers you might feel like you need to tiptoe around the topic of price or avoid addressing the issue straight on. However, the best thing you can do is give a straightforward genuine answer.

If your costs have gone up and you need to charge more, just tell your customers. Explain where your expenses have increased and how important it is for you to be able to provide a quality service. Reaffirm the value of your service and explain how increases in price are necessary to prevent corner cutting.

The last thing your customers want is for you to compromise on the quality that you offer them. Make it clear that higher prices ensure that you can operate at the standard they expect. In most cases people are understanding.

The best way to do this is to send out a price increase letter or email that outlines what the new prices are based on. To make this easy for yourself we recommend using a good CRM that can help you manage your communications.

3. Plan ahead

Sometimes circumstances might make a significant price increase unavoidable. But where it’s possible to minimise a drastic price change it’s better to keep the increase relatively small.

If you make sure you plan ahead and provide your customers with ample warning, it’s easier to control your prices.

Rather than leaving your prices for a long time or losing track of your costs and then finding you need to increase your price by a big margin, by keeping on top of things you only need to make small increases.

Furthermore, when you plan ahead you avoid having to increase your prices multiple times over a short period of time. Make sure you know how much you want to increase and then stick with it. Don’t force yourself to have that awkward conversation with your customers twice in a year.

Whatever you do, if you explain where the extra costs come in, customers are more likely to be accepting of the new figure.

4. Offer new incentives (or celebrate current ones)

This one isn’t always quite so easy to do, but the essential idea is the same as all the points explained above. By offering incentives you show the value of the product or service your customers are buying into.

If you are able to say prices have increased by such and such a figure and this is allowing us to use tools that complete the job in less time or means we can focus our efforts more on the jobs we provide you, then customers will be more inclined to pay more.

You don’t even need to offer new incentives, just highlighting the great features and deals you already offer and that can be enough to mitigate the price increase.

What about fluctuating material costs?

So far we’ve addressed why putting up your prices is a good idea along with a few tips on best practices when doing this. One issue we haven’t covered is the changing price of materials.

This might be the price of wood for a carpenter or the price of steel for construction workers, whatever the material, price variation is common, but right now the market is particularly changeable.

So how should tradesmen and women approach this issue and what can be done to mitigate the problem of ever-shifting material prices?

For a more detailed look at this issue, read our blog on managing material prices.

Managing material price increases

Our key advice when considering material costs in your pricing is the same as with all your prices. Keep your customers informed and don’t be afraid to adjust your prices.

We recommend using a good quoting software that can help you manage your material prices and create quotes that always reflect the correct margins and markup. By using software like this, you don’t need to worry about adjusting prices for every quote, as the software can automatically adjust this for you.

This is a great way to stay on top of your prices and makes sure your costs are always covered when communicating with your customers. Just make sure to add details to your quotes that specify that costs may change to cover further price variability.

For a more detailed look at this issue, we have written a blog taking a more thorough look at this problem and how you can mitigate the impact on your trade business.

Final thoughts

Dealing with pricing and communicating increases in your prices to your customers can be an uncomfortable thing to do. You might worry about upsetting your customers and damaging your business. The important thing to remember is that the benefits outweigh the risks.

Increasing your prices is an inevitable part of the development of your business. Your customers will expect it to happen at some point and as long as you are transparent and sensible in the way you go about it, your service business will benefit and your customer patronage will not suffer.