Ask the Negotiator: how to implement price increases

• What’s the backdrop to implementing price increases?

• What can you do, practically, to improve your success probability of putting through price rises?

What’s the backdrop to implementing price increases?

Unless you’ve been on a desert island with no phone for the last 12 months, the UK (and European) economy looks horrific.

In summary, as your input costs rise, eventually you have to raise prices. Otherwise, on a like-for-like volume basis, your gross and net margins get annihilated.

Here are some headline reminders about key input cost increases affecting businesses (I’ve ignored freight/distribution costs as it doesn’t affect most service-based agencies):

• GBP to USD Fx conversion rates: on 27 Sep 2021 it was 1.37; on 27 Sep 2022 it was 1.05. If you’re importing goods/services priced in USD, it’s going to cost you 30% more than 12 months ago

• UK 12-month CPI-U: as of 27 Sep 2022 it was 8.3%; credible forecasters are saying it could hit 22% in 2023. The last time it was this bad, Charlie Chaplin was knighted and Muhammad Ali won the ‘Thrilla in Manila’ match (‘guess the year’ answers to mike@piscari.com please)

• Energy prices – do I need to write anything apart from, over 12 months, wholesale forward delivery contracts for gas have risen 500%?

• Agency staff costs: huge pressure to retain hard-to-find talent. I don’t have the data, but anecdotally 12-month salary trends are up 10%-20?

What can you do, practically, to improve your success probability of putting through price rises?

I’d say price rises for clients of agencies are now inevitable. Here’s my recommended approach to facing it head-on rather than simply worrying about it.

• Step 1: Buy the book Selling the Price Increase (I’m not on any book commission from Jeb, I just love his work). I’ve been on Jeb Blount’s Podcast – he’s a talented guy and the book is full of practical tips. Some of the tips below are based on his book and my experiences

• Step 2: Don’t take a blanket approach across all products/services/clients/markets. Do your analysis, look at the factors that directly affect you and do your risk assessments. Make sure your rationale is logical and strong. Link your price increase strategy to independent data sources, ie use third-party, independent research data to demonstrate why prices need to increase

• Step 3: Pre-condition your clients, ie give them a warning that price increases are on the way. My experience is to not leave it too long between the call saying, “I’ve got bad news Jane, unfortunately we’re going to have to put some price increases through soon,” and sending them the actual increases

• Step 4: As a sales team, internally brainstorm all the worst questions you could get asked by your customers or rejections you could face. Then prepare your model answers/responses

• Step 5: Get the meeting booked, do all your preparation and calm the mind

• Step 6: Let them vent, handle objections, negotiate (where you have to), iterate and then close the deal

Conclusions

Price increases haven’t really reared their head for some time, especially given we’ve been in a low-inflation economy since circa 2000. Input costs are increasing from all angles. Ultimately, if your prices stay flat, your margins will collapse. Take a structured approach to price increases, prepare well and listen to your client’s concerns.

If you want to take a deeper dive into this topic, drop me a line at mike@piscari.com

Mike Lander is the chief executive officer and founder of Piscari. We work with agency leaders to improve their negotiation skills and provide insights into how procurement professionals work.