Threading the Needle on Price Increases
A WSJ article from last week describes several ways companies try to maintain unit profitability without increasing list prices in an inflationary environment. I found most of the practices unethical and some are likely illegal. All would fail the Bezos "customer in the room" test.
Most service providers today need to raise pricing amidst rapidly increasing internal costs, yet live in a hyper competitive procurement environment where simply applying a 5% increase into next year's pricing could impact ability to win new business.
So how can you realistically raise pricing- ethically- without actually raising your net pricing?
Tighten up pass-through estimates- many service providers spent most of their pricing effort on direct fees and give scant attention to reimbursable items, even those these items can be 30%-50% of the total budget. These items are typically plugged in as highly conservative scale estimates that artificially boost the total bottom line presented to the prospect. Look at the big ticket reimbursable items, bullet out the conditions in which the "low" and "mid" points of the range can be met, use those for your pricing, and write those conditions into the proposal.
Scope strictly to the objective- some RFPs lay out all requirements to the most minute detail, some just say "tell me how to run this to meet my objective", and most fall in between. Strictly price to what achieves the stated objective and move non-essentials to optional services. Describe more expensive alternate scenarios as text without full detailed budgets.
Promote optional services- as I've previously written, optional services are a terrific way to further guarantee the customer's objective and increase contract value without sacrificing competitiveness (in fact, done right it improves competitiveness).
Blend low cost regions into global rates- look for service areas where your pricing segments in multiple geographic areas that can be consolidated into superregional or global unit rates that improve unit profitability and simplify your pricing structure.
These are but a few ways to thread the needle on price increases so you can stay ahead of cost pressures while maintaining sales momentum.