Make a Price Increase Based on Value, Not Costs

Make a Price Increase Based on Value, Not Costs
Jillian Bateman — January 4, 2023

Have you executed a price increase recently? If so, great! But don’t stop reading. There’s more to consider. 

If not, why not? What’s holding you back? Haven’t your costs gone up? Whether it’s supplies, labor, raw materials, travel, etc., everything is getting more expensive. Shouldn’t you be getting more too? 

Here’s the real question, whether you raised prices or are about to, “Does your price increase accurately reflect the value that your company brings?” Is your team able to even sell that value? 


Why Most Price Increases Occur 

As you might expect, we talk with a lot of CEOs and business leaders who have raised prices and that’s great news. However, there’s often a problem. When made reactively, this kind of pricing strategy may secretly erode a product or service’s value. 

Here’s why. Consider how the price increase was communicated. Was it articulated using a path of least resistance? Meaning, “We raised our prices because our costs have gone up.” While this may indeed be accurate, it sends a message that the value that your company offers is limited and only tied to costs. 

Sure, there is a margin of difference between your costs and what you charge your customers, but it’s hard for your team to expertly articulate that and sell value as opposed to price. If you price based on “cost plus” as opposed to ROI for the client (selling value), then you are harming your team’s ability to execute a price increase with confidence and are putting them squarely in the “selling price” box. 


Wait, Costs Did Go Up? 

You might be thinking that I am speaking out of both sides of my mouth. I started off talking about executing a price increase because your costs have gone up, but then said it’s a problem basing pricing decisions off your costs. How can you do both? 


Three Steps to a Price Increase 

Just approach pricing from a strategic perspective, something most companies do not. Here’s how: 

The first step is to raise prices right away. We are in unprecedented inflationary times. Just because you may have raised prices recently, you may need to raise prices again just to retain profitability. Don’t put off getting it done. 

The second step is to review your pricing on a regular basis regardless of what is going on with costs and the marketplace and base it on the value provided to the client. View the impact you have with your client in terms of what your product or service means to them. Not what it costs them (or you), but what the value is to them. 

The third step, and the most difficult, is to make sure your team has confidence in their ability to discuss price increases, to sell value rather than price, and to feel that they have full pricing power. 

If they don’t, they will worm their way out of whatever price increase you have adopted. They will give stuff away. They will provide a price based on volume discounts then have no mechanism to raise prices if volume targets aren’t met. We have seen some salespeople cry because they were so petrified of communicating a price increase. 


Address Selling Value 

If you do have these types of reactions, it means your team hasn’t been selling value and that needs to be addressed immediately. Because whether we are in inflationary times, normal times, or in a soft market, if your team cannot effectively sell the value of what you deliver, then they will suffer in every market condition. 

Right now, is the easiest time to increase price because everyone is expecting it. So, what happens when the market changes? Approach pricing the way you do sales execution. Price must have a seat at the table. Your team must be equipped to sell the value of what you deliver. They must feel confident in executing a price increase and they must feel they have the power to command the full price for the value they bring. 

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