There is a trend here and it is serious. Two compelling forces are having - or are about to have - a significant impact on your business. Brian Beaullieu, favored economist for Vistage and others are concurring on the following:
1. INFLATION IS HERE - In addition to the higher prices at the pump and grocery store, prices are increasing for many raw materials. Watch the prices of virtually all metals over the past few months for an example. If these costs continue to rise as expected and you are locked in with a contract supplying your client, you may find yourself underwater - and it may happen sooner than you think.
2. OPPORTUNITIES ARE INCREASING - Business is ticking up in many categories. Inventories are being replenished, hiring is inching up and some sectors are seeing their best results since 2008. The issues resulting from the Japanese earthquake are giving alert businesses in North America some unexpected surges. (How much heavy equipment will be needed to repair the damage in Japan, for instance?)
Still, businesses are reluctant to hire because they believe this could be a bubble. The economists tell us this growth will last through early 2013. Opportunities are there but production costs are unstable. What is a CSO to do? Raise your prices.
How To Raise Your Prices
It is true that if you arbitrarily raise your prices your volume will go down. However, if your raise your prices in concert with the ability to sell value instead of price, your volume can actually increase. Here are the three steps for raising prices:
1. FORECAST As well as possible, forecast the price increases you anticipate for the next 18 - 24 months. All sales need to be profitable; make sure your prices are right. Those discounts you've been offering for long-term agreements need to be re-evaluated.
2. PREPARE Price increases are inevitable. Begin now to give your salespeople and sales managers the tools they need to sell on value. These tools include sales training, sales development, sales tools, compensation program adjustments and new incentive programs. Have your people ready to play the new game - and play to win.
3. IMPROVE RELATIONSHIPS More than ever, you will need to build, maintain and continuously improve your relationships with your clients and your vendors. Clients will tell you what their long and short term needs are going to be but they may not be prepared (budgeted) for the coming cost increases. Trust is king; communication builds trust. Sell upstream by asking your vendors to lock into long term pricing agreements. Like your competitors, at least some of them will continue to sell on price.
Chuck Reaves CSP