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Price increase justification letter

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Price increase justification letter
September 16, 2018 1st Anniversary Wishes 1 comment

The price increase letter: how to tell clients you're raising your rates . you are a business owner, and are not required to justify changes in.

Price increases are a normal part of doing business. Whether you need to raise prices to adjust to inflation or you want to offer an upgraded product, few businesses continue to offer the same price for an extended period of time. Stagnant prices often correlate to stagnant business prospects; and stagnation can kill a business.

The result is that customers of all types are understanding of a price increase; but, only when you communicate these prices correctly. Simply raising prices without warning is a good way to alienate your customers. No one wants to inadvertently pay more money for a product without understanding the reason why. Thus, communicating your price increase has little to do with the price itself. It is all about your methods of communication.

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Today, you will learn 1) how to announce your price increase without alienating customers and 2) how to implement your price increase.

ANNOUNCING YOUR PRICE INCREASE

The first rule of implementing a price increase is that you must announce it to your customers. Talking to your customers about a price increase may sound counterintuitive; however, this is actually a great opportunity for your business. Announcing your price increase allows you to remain in control of your narrative.

When you are in control of the story, you can plan it so that it is told in a way that supports customers rather than alienates them. Here are tools to help you tell your story the right way:

Be Transparent

Transparency is key whenever you’re dealing with money. Committing to pricing transparency means that you need to announce your price increase before it happens.

Start by telling your most important customers about the price increase first. Avoid letting them hear the news second hand, in a general announcement or worse, from their internal billing department. A good rule of thumb is to encourage price increases to be couriered between executives to show respect for the relationship.

After your important customers know, it is time to make a general announcement. Use the announcement to tell customers why you are raising prices and be honest. Explain the reason that you are raising prices and bolster the reason with credible facts. However, don’t create excuses. Customers understand why you need price increases but no one wants to listen to another business whine about it.

Finally, remain transparent as a business by avoiding price increases rationalized solely by profitability. While profitability is important, your customers do not want to suffer for you to win. Even hinting that you are trying to widen your profit margins with your price increase can damage your relationships.

Focus on the Positive

The best price increase announcements are not negative. In fact, they are overwhelmingly positive. Instead of focusing solely on the price, tell your customers what they get in exchange for more money.

Keep it positive by avoiding an apologetic tone. Apologizing makes it sound like you are not in control of your costs and profits. This sends the wrong message to your customers. Your customers want to know that you are in control of your business.

Also, if you are raising your prices for a good reason, there is no need to apologize. In an ideal world, you’re asking for money for a better product which benefits your customers.

Don’t forget to thank your customers for their continuing business. It cements the positive tone and a future relationship with your customers.

Provide a Timeline

Every price increase requires a timeline. It is imperative that you do not spring a price increase upon your customers. You need to create a timeline for the announcement and a timeline for implementing the increase.

Providing a clear time line for the price increase allows your customers to prepare for it. It gives them time to update their own systems. It also allows you to pad the timeline so that you do not breach any pre-existing agreements with your customers.

Having a timeline will also help you drive business before the increase takes effect. It helps you implement strategies that soothe worried customers Be careful to avoid violating revenue recognition rules by creating a situation where the demand is greater than the supply

If you choose to drive demand with your timeline, make your terms transparent and then stick to them. Ensure that you do not drive demand beyond what you are capable of fulfilling. This is a fragile period and you want to avoid making customers angry by breaking promises.

Remind Them That You Are Still Offering a Valuable Product

You should always avoid raising prices for the sake of raising prices. You want to ensure that the price hike will reflect the value of your product. When you announce your new prices, focus on reinforcing your key value propositions. Remind customers why they do business with you and it will be easier to swallow the new pricing.

When making the announcement, subtly remind customers that paying a small amount of money for a service they love is not a big deal. This will ring more true if you are adding value to the product that complements the price increase. No customer wants to pay more money for an inferior product. Thus, it is essential that you provide an incentive in value.

The logic behind a price increase is simple and should be communicated to customers. A price increase allows you to continue to offer a product or service that is still better value than your competitors. With the price increase, you can continue to offer this service in a sustainable way.

Sustainability is a key component of a price increase. When you use small increases to adjust to changing conditions and foster innovation, you protect yourself from getting into trouble and having to bail yourself out with huge price hikes.

Everyone can appreciate businesses that focus on sustainability and this will give you points during your announcement.

Don’t Be Nervous

Remember that there is no reason to be nervous about a small price hike if you have a solid business. If you are afraid of raising prices less than 10%, than you have bigger problems.

You want customers who are not with you because you offer the cheapest option. Those customers are not loyal and are willing to jump ship at any time. Ultimately, if your customer is not willing to pay 3% more for a better product then you do not have a very good customer.

If you’re afraid that your customers will jump ship at the first sign of trouble, it is better to go back to the drawing board and reconsidering your customers and your sales tactics before you work to sell a more expensive product.

Go through this slides and learn how AIESEC raised their prices without alienating customers.

IMPLEMENTING YOUR PRICE INCREASES

You can transfer the techniques for communicating your price increase over into implementing the price increase. Implementing price increases is all about being honest, transparent and not coddling your customers.

Follow these suggestions for actually raising your prices without scaring off customers:

Give Customers a Choice

No one wants to pay a higher price straight off the bat. This increases the chance of sticker shock which can shake even loyal customers. Instead, create a timeline that gives customers a choice regarding which price they pay.

This method works well if you are offering an enhanced product at a more expensive price. You can then transform your product into two different products. The first product is the same old product at the same old price. Make this one available for a limited time, allowing customers to continue to stick with what they know.

However, if you offer the second product with enhanced value, you give them the option to upgrade to the price increase. This second product demonstrates the value between the packages and allows customers to feel as though the decision is theirs to make.

This feeling of choice is important for the sales process. Customers will feel good about their decision to pay more money for a better product. It will feel like a smart business choice rather than a forced price increase.

Make the Change Easy for Customers to Implement

Your customers are sticky and they do not just change suppliers or products on a whim. They’re sticky not just because they like your product but also because making changes is difficult and expensive in terms of labor and capital. Thus, customers do not just pick up and leave unless you give them a good reason to. Generally, a small price increase is not a good reason to make these changes. The high cost of change does not make sense in this scenario.

However, you can help ensure they don’t leave by making the changes easier for them to implement. This begins with the transparency discussed earlier. It is important to give specific information to your customers to help them feed it back to their own company. Be sure to provide your customers with the correct data to ensure that it is easier to update their systems.

Avoid simply stating that you are increasing prices by x %. Instead, provide a breakdown of the new prices for customers’ purchasing orders. Keep both the old price and the new price available. The easier it is for customers to implement, the more likely they are to pay it.

When changes are easier to implement, the level of frustration decreases. This keeps customers from making emotional decisions. Keeping frustration down helps prevent the customer from shopping around for other options.

Watch this youtube video and learn more about raising your prices.

CONCLUSION

Price increases often fuel times of uncertainty but you can help prevent turmoil by communicating the increase in the appropriate way. Remember that the fear surrounding a price increase rarely has anything to do with the price itself. Be transparent, honest and continue to offer real value to your customers and you can communicate a price increase with very little pain.

While the need to raise prices is usually good news for your growing business Justify the price increase by adding features or providing some.

7 Low-Risk Ways to Raise Your Cleaning Prices (Without Losing Clients)

price increase justification letter

Sooner or later every business will reach a point where a price increase is the right thing to do. At the very least you need your pricing to keep up with inflation, but also, you may find that your continuous strive to provide a better product and customer service finally earned you the opportunity to price a bit higher. 
When prices are increased, angry reactions from price-sensitive customers are inevitable, and some may even decide not to buy your product anymore. And that's okay! In fact, if you don't have a bunch of angry customers on the phone after a price increase, it's probably because your price is still much too low, and you're leaving lots of money on the table.
You cannot retain customers that are not willing to pay a price higher than your current one. However, there are ways that you can soften the blow to those price-sensitive customers and avoid customers leaving you out of sheer anger and frustration.

1) Introduce a new version
One way of justifying a price increase is to disguise it with a new product launch. If you're in the SaaS business, you can introduce a new version at a higher price, and then outphase your current version within a short period of time. If the current "Pro" version costs $149 per month, introduce a new, slightly improved "Premium" version at $249 or $299 with a few additional features. After an appropriate amount of time, you can announce the outphasing of the current "Pro" version, forcing current "Pro" members to upgrade to the "Premium".
The key here is that you're actually providing some additional value, albeit this value comes at a very high price. However, it will eliminate the perception of paying more while getting the same.


2) Cut to the chase
Put it out there. There's no way around it, and your customers will be even more angry with you if you try to hide your price increase behind complex wording. Your customers will appreciate your honesty, and maybe even understand you, but if you try and hide it you're just another profit-oriented jerk in their eyes, trying to rip them off whenever you have the chance.


3) Remind customers about the value they get
This should not just be done around price increases -- in fact, you should make it a habit to regularly remind your customers about all the benefits they get from using your product or service. It will really pay off when you increase your price!
The trick here is to encourage customers to evaluate your product's value more fairly. Here's an example:
You sell a software that saves your client $2,000 per year, at $50 per month ($600 annually). That's a pretty good deal, right?
Now, you decide to increase your price to $75 ($900 annually) -- still a really good deal! But if you fail to remind your customer about the $2,000 she saves, she won't see that! What she sees is that now, she's paying $300 extra per year, and not getting anything extra in return. Remind her that she's still making a very smart purchase.


4) Tell them about your costs
Customers don't want to know that you are increasing your prices because you want higher profits. Instead, try to explain any additional costs that you incurred lately and use this to justify your price increase. Make sure the examples you use are costs that are somewhat out of your control, e.g. taxes, server costs, oil prices or whatever it may be. Additional wage expenses for your new secretary will not gather much sympathy from your customers.
Of course, you shouldn't present your entire income statement and justify the price increase dollar for dollar. Just let them know that at least some of the price increase will not end directly in your pocket.


5) Be humble on social media
If you're CEO or have your own business, this is especially important. Your customers don't see how hard you work, or the risk you took when you put your kids' childhood home up as collateral to fund your brilliant business idea, and even though you most certainly did earn all the money you make, showing it on social media is not good for price increases. Customers don't want to give money to wealthy people, as they will feel they need them much more than you do, and thus, feel it is very unjust that you increase prices since you "already have enough". So if you want to be on the safe side, don't show off an extravagant lifestyle on social media.


6) Launch a low-cost version
If you have a large segment of price-sensitive customers, one option could be to offer a low-cost, low-value option for those that otherwise would've stopped using your product or service and turn to a competitor. In that way, you can refer angry customers to that option while still reaping the profits from the high-paying customers.


7) Highlight social responsibility
Customers are more socially conscious than ever, and in some cases you may be able to justify a price increase with socially responsible initiatives. For instance, if you are an American firm that now decides to only use domestic suppliers, many of your customers will appreciate your patriotism, and accept your price increase -- at the same time, you get to use high-quality suppliers instead of importing your components from a developing country.
Or maybe you're committed to paying your workers a decent wage, which many customers will respect, while your wage level attracts high-skilled labour. 


8) Make sure your price can be justified
This is probably the most important point on this list; no technique can make up for a price that cannot be justified. If your price is too high, your customers will abandon you no matter what you do, and once they're gone, they can be hard to win back! Make sure you price right by undertaking thorough pricing research first.

WATCH THE VIDEO ON THEME: How to send mail to customer regarding Price Increase and to send notification for Price Increase
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Everything You Need to Know About Implementing a Price Increase

price increase justification letter

SAMPLE LETTER

[Senders Name]
[Address line]
[State, ZIP Code]

[Letter Date]

[Recipients Name]
[Address line]
[State, ZIP Code]

[Subject: Normally bold, summarizes the intention of the letter] -Optional-


Dear [Recipients Name],

This letter serves as a notice regarding the price increase that our company plans to put into effect immediately, starting June 15. This increase is caused by the continuing rise in the costs of raw materials and labor in the market today.

Rest assured, however, that we have found a way to reduce that price increase to the littlest amount possible in these circumstances. Our productivity rate and usage of the most advanced technologies in the market have allowed us to adjust the rise so that you, our loyal consumers, shall not bear the brunt of the increase.

For any inquiries, suggestions, and concerns regarding the increase or our services, do not hesitate to call our hotline number at 411-1111. We would most appreciate any and all inquiries, as well. Thank you for your continuing patronage and support.

Sincerely,

[Senders Name]
[Senders Title] -Optional-

[Enclosures: number] - Optional -
cc: [Name of copy recipient] - Optional -

Announce a price increase. Sample letter.

Further things to consider when writing announcement letters to business partners

Announcement Letters

Announcement letters are letters that notify or give information about a certain occasion, special event, or occurrence that people are required to be aware of. They could be for a concert, a special sale, or even a graduation party. Announcement letters are usually informal and state clearly and concisely what the event/occasion is and what further actions the recipient should take. Announcement letters can be used in many personal and business situations. In personal situations these letters may be used, for instance, to announce a birthday, death, wedding, or graduation. In the business world, such letters may be used to announce a new policy, change in management, financial summaries for investors, grand sale, or actions against a customer due to nonpayment.

Announcement letters should be written in a straightforward manner stating all the necessary facts. Clearly state why you feel the occasion is important. If you are delivering bad news, be optimistic for the future. Bold and highlight the points that need focus so that the content is clear to the reader. Add any information which you think your reader might want to know and do not miss out any important detail. End the letter on a positive note.

Letters to Business Partners

Letters to business partners are letters you write to people with whom you have some degree of involvement with their business dealings. A business partnership is a legal relationship formed when two or more people agree to run a business together are co-owners. When you make such a partnership, you need to write a letter to your business partners to convey your message clearly and strongly, and to keep a legal record of the partnership. The letter should be formal and must contain the partnership offer, names of all the business partners, and the terms and conditions of the partnership.

Letters to business partners should be written with a professional tone. They should conform to all the accepted business letters standards. State the purpose of the letter. Give all the necessary details regarding the partnership as outlined in the contract. Include the name and title of the recipient. Employ the appropriate formal salutations and closings. State the date clearly and mention any document that is enclosed with the letter. Close the letter on a positive note and sign it off with your name and title. Letters to business partners should be printed on the company's letterhead.

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Sending your client a price increase letter can be nervewracking. Read our tips for Plus, you can utilize our free sample price increase letter below so you'll never feel uneasy again. Falling out . Justify increase. If you've.

A Guide to Price Increase Letters

price increase justification letter

Even the most sales savvy among us have had to fight back the nerves that materialize whenever we are faced with telling a customer about a price increase. Talking about it never makes for an easy conversation.

When discussing a price increase in a business-to-business environment, it is important to remember that our customers have probably had to have the same discussion with their own customers. A company exists only as long as it earns a profit and it can only do that if it delivers a quality product or service at the right price. This means that the key to any conversation about raising the price is to emphasize that such an increase will ensure product quality.

As you begin to prepare your strategy for communicating a price increase, ask yourself the following questions.

Price Increase Strategy Questions

1. Does the customer take your product/service and add a standard percentage increase in price when selling to their customers?

If this is the case, you can point out that your customer will make more money by taking a standard percentage of a higher amount when you're presenting a price increase.

2. What percentage of the customer’s business is your product/service?

If the percentage is small, tell them that the amount of increase is only a small percentage of their total business. If the percentage is great, then you can emphasize that the price increase is necessary to maintain the level of product quality necessary for them to serve their customers.

3. Has the customer faced any other price increases from other vendors?

If so, try to identify what some percentages of the other increases have been. If yours falls into the low end, then you can point out how your price increase is comparatively smaller than that of many others. If your increase is at the high end, you can either explain how yours is the only one you expect to take and/or that you wouldn't be surprised to see others coming back to take another round of price increases. 

4. How does the customer view you and the products/services you sell?

If you have a quality reputation and record, then you can emphasize that the price increase has been carefully thought through and it is only being taken to ensure continued quality.

If you have a spotty record with the customer, then you should stress how the price increase will allow you to begin addressing some of the issues in question by allowing you to improve the overall quality of service they have been receiving. Naturally, it is important to make sure all of your comments are backed with a commitment to follow-through. 

5. Will the customer raise an issue with the price increase?

Be prepared to show documentation of how your costs have escalated and how other companies are experiencing the same increases. (For instance, the increasing cost of oil has forced any company that uses petroleum in the manufacturing or transportation of goods to most likely increase prices.)

When having this discussion be sure to show empathy for the customer, but remain firm in what you're saying. If the customer senses any hesitation on your part, they will likely try to exploit it in the form of a price concession from you.

Also, be prepared to share steps that your company has taken in an attempt to avoid a price increase. This can include ways you've already cut costs or how the increase is the only way to maintain the quality and service the customer expects. A final point that you can emphasize is the time lag between this price increase and the previous one. Having information available concerning the rate of inflation during that specific time period may also help diffuse the issue.

6. Why does the customer buy from you anyway?

Knowing this will allow you to reinforce these points when talking about the increase. You should also have ready at least two key needs of the customer that your product or service satisfies. Be sure all of your strategic information about the customer is up-to-date before a price increase is announced (Here is where a good Customer Relationship Management (CRM) system can really shine.)

7. How much business is at risk from the customer?

We can sometimes get carried away thinking that if we raise prices we'll lose the customer even though this is rarely the case. Think through what steps the customer would have to take to move to another vendor. Many times the work involved in moving is not worth the effort so you are at less risk of losing the business than you thought.

Now that you have a strategy mapped out, let's have a look at actually presenting the increase to your customers. 

Tips for Presenting a Price Increase

The following sales presentation tips are the best practices to employ when executing a price increase:

Give the Customer Lead-Time

Provide the customer with enough notice to allow them to make adjustments in their information systems and to exercise at least one more order at the existing price.

Avoid Showing Favorites

Pricing integrity is always essential but especially so during a price change. Do not treat particular customers more favorably than others in pricing during an increase. Different pricing levels are fine as long as they can be logically defended so that a customer who is not receiving the price break can understand and accept the price change.

Do Not Allow Your Customer to Find out About a Price Increase From Your Invoice

Any changes in pricing must come from the account executive or a person of high position within the company. Information regarding a price change should only appear on an invoice after every person involved has been personally notified. (Sufficient time should occur in the price increase timeline to allow at least one invoice to contain a note of the pending increase in price.)

Make Sure Each Customer Service Representative and Anyone Else Who Comes in Contact With the Customer Is Fully Aware of When the Price Increase Is Going to Be Communicated

One of the most significant possibilities for confusion is when the customer hears conflicting information from different departments. Everyone in customer service needs to be fully aware of the increase, the reasoning behind it, and the logistics for implementation. They should also be provided with an FAQ guide to ensure that when customers do ask them about the increase, they are able to share accurate information.

Believe in the Price Increase

In order to be paid what you are worth, you must charge what you are worth. Although this is not something that can be explicitly communicated to the customer, this general sense is what sets apart the best practice companies and high-performing sales professionals.

Instill an Open-Phone/Open-Door Policy

Any time a price increase takes place, it is important for all senior executives to be willing to answer a phone call from a customer or to make phone calls to key customers. For successful consultative selling, nothing sends a stronger signal to a sales organization than seeing their senior executives on the front-line. 

Before and after the price increase, monitor the sales patterns of your individual customers. It is important to quickly catch any changes that occur as a result of the price increase.

One of the Facts of Doing Business

We've all grown used to lower inflation and the overwhelming impact of Wal-Mart's philosophy on pricing. But price increases are again growing more common and acceptable as long as they are well thought through and not seen as a way to merely increase profits. Because they are an inevitable part of business today, we can't let ourselves avoid dealing with price increases. Instead, we should seek to use them strategically to increase our selling potential.

Was there ever a time that you felt compelled to raise prices, but you just but this also means you need to justify your higher fee structure.

price increase justification letter
Written by Shajora
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