The hardest thing most people have to do in business is lay people off. It’s a business decision that very few take lightly and most of us will do almost any thing to pass the responsibility on to someone else. I honestly think it can be harder to lay someone off than to be laid off yourself. (I know that’s certainly been my case.)
The second hardest thing might be to raise prices. Nobody likes it and today, customers have grown to expect the opposite. But as many small tech companies have noticed, we’re usually not selling millions of widgets with healthy year-on-year growth, so that, even in a weak economy, we might be forced to raise prices.
Setting prices in the first place is a difficult task. Of course you’ve got to cover your costs–all of them, even the tiny hidden ones–but you’ve also got to have something left over to help your business grow. As conditions change, though, what used to be rolled up in the economies of scale might become a distraction from strategic goals and prices have to be increased to accommodate this market reality. Meanwhile, your customers are going to have trouble seeing what’s in it for them. Understanding how you set the price and what’s changed is something you’re going to have to explain.
Therein lies the good news in this uncomfortable situation. We need to communicate with customers, and the more often we have a chance to do that, the better we can take care of our relationship with them. Raising prices is an opportunity to have a (difficult) conversation. The wrong way is to wait until customers send a purchase order and ask them to revise it. Instead, bite the bullet and be pro-active. You’ve got to let them know not only what is happening, but, most importantly why.
You may be raising prices because costs have gone up, or because your competitors are charging more and you just think you can squeeze a bit more out of the market. Niether point is terribly interesting to your customer. Better is too look for something that might actually matter to them. You may be reaching, but maybe all you can say is that doing this strengthens your committment to manufacturing the widget they purchase, or enables you to invest in necessary improvements. That isn’t much, but it beats begging and usually, it is, at least, an honest answer that a rational purchasing agent can understand. It is especially true that original equipment manufacturers (OEMs) need to see their suppliers as partners who need to make money if everyone is going to be successful.
You know the story: that’s a feature, not a bug! You’re not raising prices, you’re ensuring the success of their product! Hopefully that’ll work! If you can’t afford not to raise prices, then losing the customer is the best thing for your business anyway, and if not, you could always back off. Just don’t try that too often!