How to Ask for a Price Increase
With rising payroll costs many contactors need to raise pricing, but fear the contract being put out to bid.
Fortunately, there are steps building service contractors can take to prepare and present a case for increasing the monthly price.
- Customer Satisfaction: If the customer is genuinely, and with reason, unhappy with the service level, those issues should be addressed before requesting an increase. Maybe bump up inspections and services before you move.
- Labor Accounts for Most of the Cost: Gather as much information as possible about your anticipated labor needs. Providing credible wage data is vital as you build your case for an increase. Sources of information include job boards (e.g., Indeed), the Bureau of Labor Statistics, and internal wage data and customer wages (if available). If costs have increased in other areas, documentation will prove helpful.
- Get Control of Your Payroll: Review what steps you can take to control payroll costs. Is your time and attendance system just collecting payroll or helping control it as well? Explain any innovative new steps you have taken in the last 12 months to the customer. Don’t ask the customer to fund your operational weaknesses.
- Develop Proposed Pricing: Developing a proposed price for an existing customer is significantly easier than pricing for a new customer because you are working from actual data instead of estimated data in a new customer. Knowing your existing wage data and costs, calculate what the price would be if you were bidding the job again. Then, compare this price to the current price to calculate the dollar and percentage increase to the customer.
- Develop Alternative Proposals: Present three choices to the customer taking into account any changes due to hybrid working. Don’t act like hybrid working hasn’t happened. The property manager is probably worried about lease renewals and vacant space, but still needs a reliable service. Keep the alternatives short.
- Meet in Person: Make sure you present the proposals in person and with sufficient time to explain your case
- What and How to Present: Start the discussions with questions. Ask the customer to confirm what services they want. Suggest alternatives. A good discussion will ensure you are addressing real needs, not assumptions and cement a partnership relationship
- History of your relationship — length of service with the customer, history of price increases, project work completed, etc.
- Reason(s) for the proposed increase — typically, rising labor and supply costs.
- Statement of what extra steps you taken to better control your payroll costs in the last year and improve customer service. Demonstrating tangible technologies will be more convincing that words.
- Summary of any changes to the scope of work, if applicable.
- Proposed pricing alternatives compared to the current amount. Focus yourself of the profit (gross margin), not the revenue. A smaller contract with higher gross margins might be a win-win for you and the customer.
- After presenting, ask the customer for feedback.
- Adjust the proposals and resubmit. It is unlikely the initial proposals were 100% on the mark.
