Justifying price increases in a service business
Price increases are tough for everyone right now. Whether you are struggling with rising energy prices, increased parts costs, or a higher wage bill due to rising engineer salaries. When it comes to telling customers that their prices are going up, how you justify the increase can make a big difference to how customers feel about your brand and importantly the amount of business you retain.
The key is good data transparency across your service operation. For example, if you know OEM parts costs are increasing you can do two things. Firstly, using historical parts usage and planned maintenance schedules you can accurately predict which parts a customer is going to need at what cost then you can break this down for them and show them where the increases are applied. You can also look at other parts suppliers, potentially opening-up conversations with customers about how the different manufacturers pricing varies.
Secondly you can also track trends, as manufacturers are likely to change prices on different products throughout the year, whereas you may need to give your customer a fixed price for Year 1 and then Year 2. If you can see a trend or say an average 7% uplift in parts pricing you can forecast the increase over the year, apply to your fixed prices protecting your margin.
Similarly, if you can capture and report on profitability by customer, by site and by asset type then you can see where you are making or losing money, where margins are good and where they are too low. You can also interrogate the data. For example, when servicing across multiple sites, if you can show that you struggle to gain access to a specific site or asset, you can share this information with the customer; explaining how prices need to rise for this site / asset because multiple visits are required to get the work done, justifying the price increase. This can also inform how you improve the way you work with them, to ensure engineers can get access, to track if first time access improves and second visits reduce and then you can review pricing again.
Good reports start with data capture in the field, often hinging on the functionality of mobile software. Service management software that gives engineers access to job and asset history, uses bespoke job checklists, assigns parts to jobs and assets, enables bespoke forms, with pre-populated fields and customer authorisations all help organisations to capture extensive data. Good service management systems with a bespoke reporting tool can then give Service Managers and Sales Teams the transparency they need to understand where the cost increases occur so they can try to minimise these and also where to pass on relevant price increases.
Not all businesses will want to provide an individual rationale to customers to support each price change,however when you have good data transparency you can still use this to your advantage. Some businesses are applying a high % blanket increase but then using their data to determine where costs are rising and then focusing on these areas to increase efficiency, in doing so they are optimising their margins. For example, if parts and labour costs are two key areas then switching suppliers and examining which customers are being overserviced and ensuring you are charging for these can help businesses make necessary improvements.
If you’re finding it difficult to pass on price increases even though your cost base is rising, then it’s even more critical to have the right data to show you which areas you need to focus on to reduce costs and increase efficiency thus increasing / protecting your margin. The Service Geeni team have years of experience and are actively supporting customers with these challenges – we’d be happy to explain and support you.
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