Your cost of doing business increases every year, right? Learn five tips for helping your customers avoid sticker shock. Plus: The Dangers of Discounting
Consumers are accustomed to rising prices — at the gas pump, the grocery store, restaurants and everywhere else we buy what we want or need. Inflation is a fact of life; if it weren’t, we would still be able to buy that nickel loaf of bread our grandparents were always talking about.
So why are some pest management companies so hesitant to raise prices? We all want to remain in our customers’ good graces, but does it really make sense to keep holding off on price adjustments as your materials, labor and operational costs continue to steadily rise?
Absolutely not, says Ralph Zuponcic, president of Hudson, Ohio-based PricePoint Partners. “Even if you don’t see tremendous increases in product costs in a particular year, your cost of doing business does increase every year, attributable to any number of rising costs — fuel, equipment purchases or leases, employee health insurance, etc.,” he says. “If you ignore this upward creep, you will at some point be squeezing your margins so tight that you are not making money or, worse, losing money. Keeping pace means adjusting your prices, even slightly, every year or two, consistently.”
Customers of businesses that raise prices on a regular schedule get used to seeing these small increases and understand why they’re necessary, because we all live in a world where prices inch up. It’s when companies wait five or six years and then find they need to do a much more dramatic increase that sticker shock sets in, Zuponcic says.
“A 2 or 3 percent adjustment each year keeps you at the pace of inflation,” he says. “And when the increase is this small, you may decide that you don’t even need to announce it to your smaller customers. If someone’s getting a $100 quarterly service and you’re adding $2 or $3 to that price, they are unlikely to take issue with that; in fact, they may not even notice it.
“On the other hand, large commercial accounts do need to be notified, preferably with at least 60 days’ notice so they have time to adjust their budgets. Be sure to let them know in a face-to-face conversation, or by their preferred communication means, why the increase is necessary,” he said.
REAL-WORLD SUCCESS. Kevin Lemasters employs this strategy effectively at EnviroPest, which serves northern Colorado. “Residentially, we increase prices about 3 percent every other year, making sure that our new customers don’t see a price increase in the first two years they’re with us so that they have an opportunity to experience the value we provide,” he says. “We don’t announce these small increases because when we did try that approach, we got many more questions and cancellations. So now we make the adjustment and if a customer takes issue with it, we negotiate with them. We’re not willing to lose a customer over a few dollars.”
On the commercial side, Lemasters takes a strategic approach to each account, evaluating how much time the technician is spending there, how many follow-up calls are required, how much material is being used, etc. “Our goal is to generate $125 to $150 an hour in revenue, whether it’s a large or small account. If we’re not in that range, we make an adjustment. We’ve even lowered prices on a few accounts when we found it didn’t take as much time and materials as we had anticipated. We pass that cost savings back to the customer to ensure they are always getting great value,” he explains.
Commercial customers are notified of price increases by EnviroPest, usually without any negative feedback. “Commercial clients tend to understand that labor and material costs, along with other costs of doing business, go up over time,” Lemasters adds. “Sometimes when a client has been with us a long time, we ease them upward more gradually. Again, we don’t want to lose a loyal client over a few dollars; we take the whole relationship into account.”
While Lemasters has found that applying a biennial 3-percent adjustment typically covers any increases in labor, materials and operating costs while not stirring up too much concern on the customer side, PMP Billy Blasingame says he has been able at times to raise prices as much as 5 to 10 percent without negative repercussions. However, his increases don’t follow a set schedule.
“We do assess our pricing every year, but we avoid raising prices that often because, unless you’re talking about a locked-down customer, they might start shopping because they think we’re nickel-and-diming them,” he says of Blasingame Pest Management’s Atlanta clientele. “We are strategic in bumping up prices where it’s appropriate, giving consideration to customer loyalty, the type of services required and the costs we incur on the account. Our loyal customers know that if we’re raising their quarterly fee from $80 to $88, it’s because we need to. No one has ever left us for that.”
Blasingame’s experience may be the exception rather the rule, however, as a 10-percent increase might be off- putting to some customers, particularly if you don’t have a longstanding relationship with them. Before you implement a price increase, look at how past increases have been received and try to anticipate customer response. “Taking a pragmatic approach to pricing makes sense, but you might want to throw in a little gut instinct as well. After all, no one knows your clientele and their expectations better than you,” says Zuponcic.