Note from Jeff Beals — Today we have a guest article written by my colleague Jeb Blount, who just released an outstanding book this week: Selling the Price Increase. Enjoy!
By Jeb Blount
I clearly remember the very first time in my career that I was asked to go out and get price increases from my customers. My boss called a meeting with all of the account managers in our region. At the meeting, he handed each of us a list of our accounts and the monthly revenue volume of each account.
I sunk in my seat as he dropped the bomb. We each needed to get a net 6 percent increase from our account base. He asked us to go through the list and choose the accounts to approach for price increases. He gave us until the end of the week.
Back at my office, as I started pouring over my accounts, I became sick to my stomach. I’d worked hard to establish those relationships. Many customers had become friends. Raising their prices felt like a form of betrayal.
As I evaluated each customer, I found good reasons why I shouldn’t approach them with a price increase. I went through the list again and again but could only identify a few accounts to go after. I came to the conclusion that it would be impossible to net a 6 percent increase on my customer base.
When I met with my boss at the end of the week, I unloaded all of my excuses. But to no avail. He told me flatly and firmly that our leadership wanted a 6 percent increase and there would be no excuses. I had no choice.
I left that meeting feeling deflated and consumed with fear for how my customers would respond. I almost quit my job over it. Prior to being told I had to sell price increases to my customers, I loved my job. Now, I was questioning everything. I’d rather have done a thousand cold calls from inside a shark tank than approach a single customer with a price increase.
Mostly though, I was afraid. I procrastinated and avoided those conversations until I was forced to get the job done because I was out of time. I made lots of mistakes and fear got the best of me. It was one of the worst periods of my sales career. I made it through that awful ordeal but the lessons I learned about confronting fear stuck with me.
Over the years I developed thicker skin and a more effective approach to price increase conversations. But I still don’t like to do it. It’s one of things I share in common with most sales professionals and account managers – nobody likes price increases.
The truth is that salespeople love to close sales, love to give discounts, love to make our customers happy, love to solve problems. But, as a rule, we have a psychological aversion to and loathe selling price increases.
Approaching customers with price increases sits at the tip top of the pantheon of things sales professionals hate. It sits higher than collecting receivables, cold calling, and entering data into the CRM.
Given the choice between selling price increases and doing anything else – and I mean anything – salespeople will always choose anything else.
One of the reasons that I hated price increases and believed that I was betraying my customers is that I didn’t understand basic business fundamentals. I didn’t understand that price increase campaigns are far more effective at generating profit and free cash flow than increasing top-line revenue through sales volume increases or acquiring new customers.
Nothing else in the business-to-business sales arsenal protects the health of your company like price increases. They protect the enterprise during inflationary periods, produce capital for investment in growth, help improve quality and service delivery, boost stock prices, and protect jobs.
The payoff for price increases is massive. They can drop through as much as 400 percent more profit as increases in sales volume. For example, a 1 percent increase in sales volume, will produce 3.3 percent in profit. However, a 1 percent increase in price, when sales volume remains stable, delivers an 11.1 percent increase in operating profit.
The bottom line is that increasing prices is the single greatest profit improvement opportunity and strategy for B2B enterprises. That is, of course, if you retain your customers along the way.
[You can learn more about Jeb Blount at SalesGravy.com)