How do you approach a significant price rise with customers (since the labour wage is killing profit margins)?

Here is how employers in the construction sector can implement a price increase successfully.

6 essential steps for implementing a price increase

Even though all signs point to raising prices, many construction companies are still hesitant to do it. Whether it's due to a fear of losing business or not remaining competitive anymore, whatever the reason for hesitating, it's time to accept that this is the only way to recover profit margins. When the cost of skilled site labour jumps 3.6% in one month and is continuing to rise, that's a strong argument in favour of doing so.

Here are 6 steps outlining how to implement a price increase without losing business:

1. Evaluate your current operations

Before you start increasing your prices, you need to evaluate your current operations and your level of service. For example:

• Are there areas in your business that you can improve on to save money? I.e. by improving your material management, leveraging technology, and budgeting effectively. If you're running your business as efficiently and cost-effectively as possible, you won't have to increase your prices so substantially. 
• Are there areas in your business where you could be doing better? I.e. delivery, quality, overall customer satisfaction etc. You'll need to improve on any customer concerns before implementing a price increase as you'll receive major pushback. 

If you have saved money where you can and your customers are happy, this is the best possible situation for you to raise your prices. Happy customers will be far more willing to pay more for a good service. 

2. Give advanced notice

Nobody likes to be surprised when it comes to parting with money, so always always always give plenty of notice. 

When giving notice of a price increase, a good rule of thumb is to give at least a month for them to get their ducks in a row. The client may need to re-assess their budget, consider alternative options or discuss this with the decision-maker/s in the business. They will need plenty of time to come to terms with the change and to accept it, so the longer you give them to do this, the better. 

Things to remember when giving notice of a price increase:

• Always discuss and agree on the price difference before the contract has been signed.
• Encourage the client to take on more work with you before the price rise kicks in.

3. Be honest and explain the reason for the price rise

The best thing you can do when you're announcing a price increase is to explain to the client exactly why this is happening. People want honesty; they want to know and understand why the price of your service is going up so the more you can explain, the more likely they will accept the change. 

For example, we have to increase our prices because:

• The demand for construction products and associated materials are increasing.
• But due to the effects of the pandemic and Brexit, raw materials are becoming increasingly scarce and therefore, expensive. 
• The same goes for skilled labour, the price of which has also skyrocketed (and continues to do so).
• As a result, companies like us, who utilise these materials and skilled staff, are forced to increase their prices just to break even. 

If you lay all this out to your clients - and make it clear that you absolutely have to raise your prices to break even and maintain the quality of your current service - there will be far less resistance to accepting this change. Why? Because your willingness to be transparent will make them want to be loyal. 

Things to remember when justifying your price rise:

• Start by renegotiating some of your long-term contracts, especially the ones that are no longer profitable or sustainable on the current terms. 
• If it's been a long time since your last rate hike, mention this! 
• Always link the price increase to a customer-centric value narrative.

4. Call it what it is: a price increase

If you confuse your clients, they may feel blindsided when they see an unexpected price increase on their next bill. This is a sure-fire way to lose business so always be clear and call this what it is: you're raising your prices. 

Avoid vague language like we're “updating” or “adjusting” our prices and stick with “increasing” or “raising” instead. While this may seem like a small thing, vague or confusing language can actually do a lot of harm, even with your longest-standing client relationships. 

We know it's difficult to discuss money with clients but being clear from the get-go will make the process much easier. No one likes to be deceived or to be made to look like a fool, so always go with honesty and transparency. It will be greatly appreciated. 

5. Be confident

There is always the risk a customer or two will walk out the door when prices go up, but you have to hold firm in your propositioning. Stay strong with your need to do this and don't apologise for it. You have a business too and you want to be able to keep doing what you're doing and being able to do it well.

That's not to say that you shouldn't empathise with your clients. In fact, you absolutely should. Just make sure to do it in the right way. After explaining your reasoning for your price rise, by all means, express understanding when your clients push back. Just DON'T undermine yourself by apologising for making a sensible business decision.

6. Be available for further questions or concerns

Whether you announce your price rise via email or you contact each client directly, make it clear how they can contact you for further questions or concerns. You want to make sure your clients have all the information they need to make an informed decision. Otherwise, you run the risk of losing them to your competitors who may still have lower prices. 

Don't wait to raise your prices

Now you know how to implement a price increase (without losing business), don't procrastinate! Rip off the bandaid now. Yes, it's a difficult conversation to have, but it will give your clients more time to come to terms with the new prices, and the more likely they will be to stay. Not to mention, you'll have peace of mind that soon you can get back to delivering projects on budget and on time, and at a mark up that gives you enough to ensure the survival of your construction business.

Need help with increasing your prices?

An accountant can help you with every step that's needed for a successful price increase. So if you need help budgeting effectively, pricing jobs correctly, and improving the efficiency of your processes, contact us today and we'll help you increase your bottom line.