Cost increases are a reality we all have to deal with as salespeople. And, those increases must be passed along to protect our bottom line. While price increases may not impact the homeowner doing one project with you, with repeat customers such as builders, increases need to be explained and sold.
There are many factors that affect the pricing of our projects. Sometimes there can be hundreds of components that need to be priced, frequently from different vendors. Increased prices can come from cost increases in materials, labor, freight and/or delivery or overhead – and we as salespeople need to discuss these increases with our customers and confidently sell our products and services to them at the newly raised rate.
In our business, we see price increases on materials as more of a fluid action, constantly fluctuating up (and sometimes slightly down) as the individual material costs change. The plywood, hardwood, finish (paints, stains and other chemicals) and metal markets, along with other traded commodities have flux in each of their categories that affect our pricing. We have vendors who pass along those moving costs to us every few years. Other companies we purchase materials from may be estimating their overall cost increases and averaging them into one yearly cost increase to us, while still others may adjust their prices monthly or even daily.
Labor is another area where we see cost increases. Typically, these are yearly increases in labor wages that must be added to our pricing.
Freight and/or delivery costs are ever changing as well. Increased fuel costs have companies raising their pricing or adding fuel surcharges.
Indeed, increases affect everything from office supplies to business licenses, technological equipment to insurance – and the list goes on and on.
If you have products you sell that fluctuate frequently, protect yourself and your pricing with guarantees up to a certain point, and highlight this on your estimates. Perhaps the price can be guaranteed for 30 days. Whatever finite time frame you choose, be sure it can be honored with no adverse effect on your profitability.
SELLING AN INCREASE
When it comes to selling a price increase to builders or other customers, first and foremost, do not procrastinate with starting the discussion. The sooner you have the talk, the more you protect your bottom line. As salespeople, we sometimes have a fear of selling an increased price. But confidence is the most important attribute we can bring to the table when we meet with builders or other customers to discuss price increases.
Begin the discussion by presenting your position on the new pricing structure and your reasoning for the increase. Then sit quietly and wait. If they accept it, then your job is done.
If they don’t understand, or raise objections, listen and let them vent. When they’re done objecting, your first response might be, “What value do you perceive I and my company brought to you and your business over the last year?” Get them talking about the value of your business, not the rejection of your pricing. If they have confidence in the quality of your products and services, they will recognize the value in your pricing.
I recently had a meeting with a long-time customer, a custom home builder, to talk about a change in pricing structure and a cost increase. We had to change from yearly price guarantees on products and services to monthly guarantees, due to one vendor we purchased from changing its structure. Additionally, another vendor changed his finishing process and improved the overall quality of the finished product, but with that came more cost. So, we needed to increase our costs and I needed to discuss this with my client.
We got through the pricing structure change easily enough, but he objected to the increased cost. I’d already explained the benefits of this change and how it would only increase customer service long term by reducing warranty issues and creating a better product for his clients. So I knew reiterating those points would be moot.
I let him vent a bit and sat quietly. After he was done, I asked, “What value do you think I brought to the table over this past year and how did that have a positive impact on your business?” The key is to get the customer talking and have them shift gears from the negative to the positive.
He sat and pondered for a minute and said, “We like the quality of your products. Your installation team is professional, works well with our other subs and is highly skilled. And you are always accessible, you always answer my phone calls, always live up to what you say you’re going to do and you’re great with my clients.”
I thanked him and then followed up by asking what added value these attributes provided his business. He said, “I know I don’t have to manage you as a subcontractor as much as other subs, because I can count on you and your people to get it done. That saves me time and peace of mind… which is immeasurable.” He sold himself, without actually knowing he was doing it, and I didn’t even have to say anything!
Then he returned to complaining a bit more about the price increase and how he wouldn’t be able to increase the cost of his homes accordingly. So I asked him why he believes his clients come to him to have his company build their homes. He said, “We have built a reputation on providing our clients quality products and services and doing what we say we will do, for the price we said and in the time frame we agreed on.”
I pointed out that by surrounding himself with like-minded partner subcontractors, he could continue to provide this level of product and service and uphold his great reputation.
He concluded, “I know I can find another vendor who might be cheaper, but I don’t know what I’m getting myself into with a new company and I know they would lower their pricing to get my work and then just raise it as we go along. Switching to a new company, I might encounter the same issues, but don’t know how they will respond. Working with your company, I know I can count on you to come through for me.”
When you need to raise your prices, you can talk to your customer about these same things. There may be less expensive alternatives out there, but they may well sacrifice value for cost.
When you’re challenged on price increases, the key is to avoid giving in. Instead, illustrate the value of what you bring to the table.