Asking Customers for Price Increases

4 Steps to Successfully Presenting Your Case

Asking a customer for a price increase can be a nerve-wracking exercise. The fear of hearing – “well, you know, if you increase our price, we will have to bid this out” – can keep us from asking for appropriate and necessary increases to (1) provide wage increases for our team, (2) cover the cost of supplies and other cost increases, and (3) maintain a reasonable profit margin. This article will discuss four steps/actions to prepare and present a case for increasing your monthly price.

Keeping the Cart Behind the Horse
While this may seem obvious, it is worthy of mention here – it is NOT appropriate to ask for a price increase if your level of service is lacking. We have a detailed customer experience process, but sum it up in three words:

  • Convince (a company to do business with you)
  • Prove (to the company you were the right choice)
  • Deepen (your relationship so you can ask for more work, ask for references/referrals, and ask for a
    price increase).
 

As your company becomes aligned on meeting your customers deepest needs, the natural progression is a relationship (partnership) where trust is very high.  When trust is high, asking for a price increase becomes easier. We have found that when we deliver service that meets our customers deepest needs, they want to see us succeed and flourish. Most customers wish to remain with vendors in which they trust and have confidence.

Step #1 – Gather Information
Because most of the cost in a janitorial service program is labor, gathering as much information as possible about your anticipated labor cost is crucial. Providing credible wage data is vital as you build your case for an increase. Sources of information include the following:

  • Indeed – Search for janitorial positions posted in the last seven days
  • Local School Districts – Typically posted on the system’s websites in the Human Resources section
  • Bureau of Labor and Statistics – This data can be a bit lagging, so take that into account
  • Internal Data – Wages of current team members at their site and others in the area
  • Customer Wages – If available, find out how much your customer is paying their team members. In addition to wage data, the following information is helpful when building your case:
  • Documentation (emails/letters) of cost increases from supply and equipment vendors
  • If you have a job/customer level cost analysis or trend income statement, that information is helpful
 

Again, if available, a job/customer level team member turnover report. 

Step #2 – Develop Proposed Pricing
Developing a proposed price for an existing customer is significantly easier than pricing for a new customer because you are working from actual data instead of estimated data in a new customer proposal. The following pricing elements should be included in your price:

  • Daily work hours required to complete the proposed scope of work
  • Estimated weighted average wage rate needed based on the data colled in Step#1
  • Cost of labor burden – Payroll taxes, workers comp, GL
  • Cost of team member benefits – Vacation, insurance, etc.
  • Cost of supplies – Chemicals, small equipment, gloves, rags, mop heads, etc.
  • Equipment depreciation and repairs – Only needed if you have larger pieces of equipment on site
  • Miscellaneous Costs – Team member recognition, PPE, etc.
  • Mark-up – This depends on various factors, including internal targets (ours is 18% – 35% depending on size), competition, the historical financial performance of the job/customer, etc
 

You can develop a proposed price for your customer using these pricing elements. Then, compare this price to the current price to calculate the dollar and percentage increase to the customer.

Step #3 – Develop Repricing Proposal/Partnership Extension Document
Using the data collected and derived in Steps #1 and #2, you are ready to prepare a Repricing Proposal or Partnership Extension Document. This document needs only to be two pages long at a maximum. The following are sections to include in this document:

  • History of the relationship – Length of service with the customer, history of price increases, project
    work completed, etc.
  • Reason(s) for the proposed increase – Typically, rising labor and supply costs
  • Summary of any changes to the scope of work, if applicable
  • Proposed pricing compared to the current amount
 

Again, this document does not need to be very long. Instead, the document should be brief and backed with reliable data.

IMPORTANT NOTE: Find out when your customer prepares their annual budget. Providing this document to the customer 1-2 months before their budget season is best.

Step #4 – Meet with Your Customer to Present Your Case/”Tell Your Story”
Our approach to new customer growth is to “serve rather than sell.” In other words, we believe we are most successful growing our business when we convince customers to do business with us by serving their needs throughout the sales process.

In the same way, we want to tell a story (or build a case) where the customer wins even with a price increase. Pulling this off requires a blend of confidence, humility, and transparency. Below are recommended agenda items for this meeting:

  • Reviewing and discussing value elements – Generally, value elements include reduced anxiety/peace of mind, decreased hassles/complaints/greater productivity, reputational assurance (boss/coworkers compliments), etc.
  • Discuss the importance of team member wage increases – Attract better team members and/or retain consistent team members
  • Data sharing – Sharing wage and other cost data is helpful when presenting your case for an increase. Fortunately, most businesses are aware of the rising labor cost, labor scarcity, and other operating cost increases.
 

As you close this meeting, ask the customer for feedback. If there is any “pushback” humbly remind them of the need for the increase (typically remaining competitive in the labor market), and draw them back to the value you provide. We have found that our customers do not wish to make a change to janitorial vendors (when we are providing value) and are agreeable to reasonable increases.

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