Finance Archives - TAB Corporate

The Key to Raising Prices Without Sacrificing Customers

raise prices and keep customers

It’s a challenge every business faces at some point in its lifecycle—the need to raise prices in order to maintain operations and secure revenue to finance future growth. But the marketplace is littered with companies that attempted to achieve this goal but lost much of their valued customer base. One wrong step along the price-increase process and customers can feel mistreated, alienated and turned off enough to no longer purchase the company’s goods or services, even if they’ve been rewarded in the past with quality care and products.

The key to raising prices is designing the right strategy, coupled with a sense of timing and an all-out communications effort to persuade a loyal customer base that the price hike is both appropriate and promising of better things to come. Here are tactics to consider when you’re ready to raise prices:

Leave no ambiguity about the services you provide. Hopefully, you’ve laid the groundwork to clearly differentiate between what your business provides and how it stacks up compared to what’s offered by the competition. But it never hurts to further expand upon how your specific solutions effectively address problems that your customers can’t find elsewhere.

A good time for a price hike is when you can upgrade your product’s differentiating factor into an even more streamlined solution for the problems your customers face.

Incorporate price hikes in your strategic plans. Some companies mistakenly wait for what seems to customers an arbitrary time to suddenly announce a price increase in their goods and services. Instead, consider incorporating a comprehensive pricing strategy as part of your long-range business objectives, thus anticipating the influence of market forces, competitive gains in the marketplace, and other factors.

Being in a position where you can anticipate the next scheduled price hike enables you to prepare your customer base for that eventuality.

Investigate tiered pricing opportunities. Different customers may be willing to pay different prices for your business offerings. Multiple price points often make sense for retail and service businesses but can be applied to any business that offers a tiered pricing system with varying levels of service (or product upgrades) at different prices. This approach also gets customers more comfortable with price increases, making it possible to introduce across-the-board price hikes at a later date.

Communicate intentions in a positive light. Any increase in costs to customers will incur some level of push-back. For this reason, it’s critically important to communicate ahead of time your intention to take this step. Moreover, framing your message in a positive light—rather than blaming inflation or your own manufacturing/distribution expenses—can smooth the path toward eventual acceptance.

Emphasize your ongoing commitment to the highest product quality and most efficient customer service, as well as any investments your business has made in expanding personnel or acquiring state-of-the-art technology. Price increases go down better if the customer feels your business is spending money to improve its quality for them.

Test a price increase. It’s natural to expect objections from customers, but that’s not always the case with a rise in prices. “Your best customers might even wonder why you haven’t done it sooner,” notes Small Business BC, which adds that if you do have concerns about your existing client basis, “you could always introduce the changed pricing on new clients only.” This helps you gauge the effect of higher prices for your products in the marketplace.

Finally, help cushion the impact of a proposed rise in prices by offering one-time consultation services or other form of specialized assistance to your customers. This demonstrates how important they are to you, as well as your willingness to go above and beyond on their behalf.

Want to learn more about strategic planning and price increases? Find out if a TAB Board is right for you!

 

 

Micro-Loans: Growing a Small Business Doesn’t Always Take Big Bucks

Small Business Loan Blog PhotoBy Ty Kiisel

With the notable exception of the businesses that make appearances on reality TV or high-growth high-tech companies, most small business owners aren’t looking for millions of dollars to ramp up sales, launch new products or otherwise fuel growth. In fact, many business owners are able to leverage relatively small amounts of capital into big results.

Fortunately, while many banks are stepping back from making relatively small loans of $150,000 or less to small business owners, there are lenders that have stepped in to fill the void left by those bankers retreating from loans they see as too risky or not very profitable. Depending upon the age of the business or the business’ credit profile, they may even have more than one option.

The SBA is Promoting Smaller Loans

The SBA, a U.S. government agency tasked with running the flagship national loan guarantee program, recognizes how important small loans are to the smallest small business owners, and they’re trying to make them more accessible. In an effort to encourage more of their participating lenders to make loans under $150,000, they started by removing fees on 7(a) loans in that category a couple of years ago. The 7(a) loan guarantee program is one of the most popular loan guarantee programs, and it appears the strategy is helping. Within the first six months of implementing the removal of fees, SBA-backed loans under $150,000 increased by around 15 percent.

Earlier this year, the SBA increased their efforts to court credit unions into joining the ranks of SBA lenders in higher numbers with the idea that they would be a great fit for borrowers looking for smaller loan amounts the bigger banks weren’t interested in.

In addition to what they’re doing with the 7(a) program, their micro-loan program is helping business owners looking for $50,000 or less. The SBA considers any loan of $50,000 or less to be a micro-loan. They make these micro-loans available to business owners through nonprofit community-based lenders. According to the SBA, the average loan size in this program is roughly $13,000. The program is designed for those business owners who can leverage a relatively small loan amount into a positive impact within their businesses, for their customers, and the communities they serve.

“We work with many different businesses,” said Stacey Sanchez of the San Diego-based non-profit CDC Small Business Finance, an SBA micro-lender. “Restaurants, small merchants and other businesses the average person might associate with Main Street. We help a lot of startups get off the ground as well as some businesses that might have been around for a while, but don’t need a lot of capital. Many businesses could be a fit for the micro-loan program depending upon the nature and size of the business, and where it’s located.”

SBA-affiliated lenders aren’t the only place a business owner can fund a micro-loan; there are also community non-profits and other lenders who provide loans in that under $50,000 category.

Community Non-Profit Lenders and Micro-Loans

Like the community banks of years past, many of these micro-lenders believe a business owner’s reputation is an important metric when making loan decisions.

“We look at what we do as very similar to how small business lending took place 100 years ago. Back then, a business owner’s reputation in the community was the primary way a banker would evaluate his or her creditworthiness. Although times have changed in many ways, we believe this is still a good way to determine who gets a loan and who doesn’t,” said Justin Renfro of Kiva Zip. “Your reputation within your community is what qualifies you for a Kiva Zip loan. We call it social underwriting.”

In practice, if you can get 20 to 25 people from your personal network to contribute as little as $5 each to your financing goal, the Kiva Zip community of 1.5 million lenders will do the rest. They are looking for ways to tie the financing they provide back into the communities these businesses serve—which is one reason why Kiva Zip takes this approach.

Of course, Kiva Zip isn’t the only lender looking at innovative ways to put micro-loans into the hands of small business owners. Accion, the AEO’s TiltForward initiative, and other non-profit lenders are continuing to find new ways to help serve small businesses.

Online Lenders are Making Small Loans More Accessible

A new breed of lender has also stepped up to offer small business owners loans within this category of lending. Their services are available online, and while some of these lenders do make larger loans, loans of under $250,000 are the sweet spot for many of them.

Like the loans described above, these loans are available to early-stage businesses, those with a year or two in business, along with established businesses. Loan terms vary from lender to lender and include shorter-term loans of six to 24 months as well as longer-term loans.

When small businesses are looking for capital to fuel growth or fund working capital, it’s not that they want too much, but rather too little that makes it difficult to go into the local bank and get a loan. The power of these smaller loans is that, in the right hands, they help entrepreneurs who identify opportunities where a relatively small amount of capital can make a significant difference in their businesses. There are more options available than ever before for business owners to access capital to grow their businesses, expand and hire new employees, and strengthen local communities. Fortunately, there are places to look, and growing a small business doesn’t always require big bucks.

Ty Kiisel is a contributing author at BusinessLoans.com, a new resource full of content addressing all aspects of business financing for small business owners. Ty has over 25 years of experience in the trenches of small business, and provides personal anecdotes and valuable tips to help small business owners become more financially responsible.