How to negotiate a price increase


Published on: September 2022

Written by: Alan Gentry

Your company just asked you to negotiate a price increase with your customer based on the recent market conditions. It might be the first time that they’ve asked you to do this. But in some cases, this request could be the first of many.

Price increases are never easy to bring up with potential or existing customers. There are numerous reasons why these can even make the most seasoned sellers uncomfortable:

  • “My customers are struggling with their own margins and now I’m asking them to increase costs and possibly shrink their own margins further?”
  • “This is the fourth time this year that I have had the same conversation with my customer.”
  • “It’s not a comfortable situation for me. My customer tends to get upset and threaten to find other suppliers.”

And there are many more. The bottom line is that this is an uncomfortable conversation. So, what can you do to make a more compelling case?

  1. Negotiate on something other than price.
    When it comes to negotiating price increases, sellers tend to negotiate on a single variable… price.  In most conversations, you might hear “your price is too high” or “you need to lower your price to stay competitive.” Instead, think about other variables you can explore to help further the conversation.

    Consider ways to create value for customers other than price, such as:
    – Volume or share achievements

    – Specifications on certain products
    – Warranties or guarantees
    – Contract terms
    – Delivery term
    – Trainings or support

    Ultimately, retaining the customer will come down to the value that you’ve demonstrated and the relationship you’ve created.

  2. Understand your customers’ position.
    To make a compelling case for raising prices, you’ll need to present the other ways you create value for customers in a way that is meaningful to them. This starts with understanding the customer. Ask yourself:

    – Why do they have this position?
    – What are their interests in this position?
    – Is it a company mandate?
    – More importantly, is it important to them?

    Once you can answer these questions, you will have a very clear understanding as to the “why” behind their position – in other words, the root cause behind their issue with a price increase. By developing this understanding, you can identify the other avenues for creating value that are meaningful to them and whether it is something the organization values highly. If the answer is yes, and you’ve found a variable that is important to them, you should be able to trade for equal value. You get the price you need, and they get the value that matters most to them.

  3. Above all, trust.
    The last factor in navigating a price increase conversation is trust. A seller’s ability to build trust with their customers is necessary for helping reduce the fear, uncertainty, and discomfort involved with price increases. However, trust isn’t something you can earn once and bank on indefinitely. It is constantly being evaluated. Expect your customers to be thinking about your:

    – Capability and competence levels in interactions
    – The reasoning behind why you are taking a certain action
    – Responsiveness to past challenges
    – Knowledge of their business and needs
    – Level of curiosity around their current state

    The level of trust between you and your customers will accelerate or inhibit your ability to influence them and properly position a price increase. Make sure that you are constantly putting in the work to build trust so that when the time comes to raise prices, your customer is ready and willing.

In a recessionary and high inflation environment, price increases are only to be expected. However, by negotiating on something other than price, knowing what your customer values, and establishing trust, this challenging conversation will be significantly less difficult.

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