Raising prices on customers who have been with you for years

Almost every small business has a group of customers paying a rate set years ago. They are usually the longest standing accounts, they are often the ones the owner likes most, and they are frequently the least profitable work the business does. The reason is arithmetic rather than sentiment: costs have risen every year and that rate has not.

Repricing them is a task most owners postpone indefinitely. It goes much better with a method, and the method is mostly preparation.

Work out what each account is actually worth first

Before deciding anything, calculate what these accounts produce. Take a handful of the oldest ones and work out, for each, the revenue over the last year, the direct costs, and the hours spent including travel and administration. Divide to get an effective hourly return.

The result is usually uncomfortable and it is the thing that makes the conversation possible, because you stop asking for more money and start correcting something you can point at.

It also tells you which accounts to reprice and by how much. They will not all be the same. An account that has drifted twenty percent below your current rate needs a different conversation from one that is barely covering its costs.

Decide the number and the date before speaking to anyone

Set the new rate at what you would quote a new customer today, or slightly below it if a long relationship warrants a modest recognition. What you should not do is invent an intermediate number as a preemptive compromise, because you will then be negotiated down from that.

Choose an effective date far enough out to be respectful. Thirty days is a minimum; sixty is better for a business customer who has to plan around it. Choose the same date for everyone in the group, so that the change is a policy rather than a series of individual decisions you can be talked out of.

Write to everyone, then call the ones who matter most

A short written notice goes to every affected customer. It should state the new rate, the effective date, and one sentence of reason. It should not apologize, and it should not include a long explanation of your cost base, which invites a debate about your costs rather than about the price.

Something like: our rates are increasing to a stated figure effective the first of September, the first change since a stated year, reflecting increases in materials, insurance and labor. We value your business and wanted to give you notice well in advance.

Then call your largest accounts, and the ones where the relationship is genuinely personal, before the letter arrives. Hearing it from you first is worth a great deal and it takes ten minutes each. The call is not asking permission. It is telling them what is coming so they are not surprised.

Expect less pushback than you are bracing for

Most customers accept a moderate increase without comment. Some will not notice. A few will ask about it, and a small number will object.

For the ones who object, the useful response is to acknowledge it and hold the number. "I understand, and I have kept this rate as long as I could. The new rate takes effect on the first." Repetition without new argument is more effective than justification, because every additional reason you offer is another thing to argue with.

Have one concession prepared that costs you little: a longer notice period for this customer, a phased increase over two steps, or a discount tied to something that benefits you, such as annual prepayment or flexible scheduling. Offering a concession that improves your position is different from simply giving ground.

Be willing to lose a few, and know which few

A price increase that nobody objects to was probably too small. Losing a small proportion of accounts is a normal and often positive outcome, because the ones that leave over a moderate increase are usually the ones with the worst returns to begin with.

Work out in advance which accounts you would genuinely be sorry to lose, and be honest about it. For most businesses that list is shorter than expected. The capacity freed up by losing two low margin accounts is capacity available for work at the new rate.

Time the increase against your own calendar

Announce it when the business is visibly performing well rather than during a quiet spell. A rate increase from a business that is obviously busy reads as demand. The same letter arriving during a slow month invites a customer to test whether you mean it.

Avoid announcing it immediately after any job that did not go smoothly with that particular customer, and avoid the weeks around a renewal if they have an annual agreement, unless the renewal is the mechanism you are using. Small timing choices change the response rate more than the size of the increase does.

Make the next one automatic

The reason this conversation is difficult is that it has not happened for years. The fix is to make it routine.

Put an annual review date in the calendar and adjust rates on that date every year, whether by a large amount or a small one. Write into new agreements that rates are reviewed annually with notice, so that the first increase is expected rather than announced.

Customers accept an annual adjustment as normal in a way they do not accept a single large correction after five years of nothing. The total money is the same. The difference is entirely in whether it arrives as a routine or as an event, and that is a decision you make once.