Keeping your small business profitable can invariably mean periodically raising your prices. Tradie business owners operating in New Zealand will be familiar with supply chain cost issues and the challenges they can pose, especially in the current business climate.
While your customers may not like it, just like the need for business insurance, such as trade insurance, price increases are considered an essential part of running a successful business
Cost increases are part of daily life for trade business owners due to economic issues such as inflation, coupled with related issues around scarcity of resources in the wake of the COVID pandemic. With all that said, it can be important for small business owners to know how to strategically time their price increases and how to subtlety introduce them in a way that minimises the impact on clients.
So, let’s dig into a few of the challenges your small business may encounter when you decide to increase the pricing for your products or services and how you may offset any pushback from customers regarding your price increases.
The cost of resources is changing at a faster pace than ever
It can be a challenge for small business owners to keep all of their invoices organised and accurate when basic yet essential products that are used in the running of your small business are constantly changing due to inflation. To offset such cost increases you may consider reducing the validity of your quoted prices to keep up with these price fluctuations. Thankfully, this is generally an easy fix: simply update the trading terms and conditions at bottom of your quote template.
To use an example, you may change the validity period of your quote from 30 days to 14 days. You may have to manually adjust some settings or enter the updated validity period if you use job management software that has an integrated function for quoting jobs.
The price lists for suppliers are out of date
As a diligent small business owner it’s in your interest to know the price list of your suppliers so that you can accurately quote for your own services. As such, make it a priority to secure the current and updated price lists from your key suppliers, and be sure to subscribe to their supplier emails to ensure that you receive updates and alerts when suppliers adjust their price list.
To stay up-to-date with your suppliers’ pricing, it is worth putting in the effort to keep up appearances with them all. If they’re in your local vicinity it might be worth your while to drop in and put in some face time with them once or twice a month. If they’re interstate or overseas, visiting them in person might not be viable, but you can leverage Zoom, Microsoft Teams or other video conferencing tools for regular virtual meetings with the suppliers who are most important to your small business.
Cash isn’t flowing as well as it should
Late invoicing and late payments can very quickly lead to cash flow not flowing. In such instances, achieving positive cash flow can be challenging and pose problems for your small business. To offset this, you may pay for your trade materials such as wood and hardware items at the time you order them, rather than after the job is completed or delivered.
This is becoming a common practice in trade businesses and can be beneficial for both sides. It spreads the payments over a longer time period and breaks them into smaller chunks, while enable tradies to pay cash for the supplies they require right now, rather than incurring an immediate debt.
It is awkward to talk about price increases
We’ve all been there. It doesn’t matter how predictable your price increases may be, it’s not easy to have to tell your clients that prices are going up. It’s a case of just ripping the bandaid off, being upfront, and communicating your price increases clearly. Periodical price increases come with the territory in business, but you may soften the blow a little by how open you are about communicating you price increases. The more warning you can give your clients, the better.
One disarming way to communicate price increases can be to create an email campaign that notifies customers of any price increases and provides them with quotes and new pricing information. Ensure that your email communication clearly itemises the price increases you are introducing and to include all information your customers will want to know, including dates for various payments.
Clients are requesting firm quotations in advance
A firm quote may be required if your clients apply for financing to finance their upcoming project. If you are willing to give one quote, be prepared to adjust your prices to account for any cost increases that may be on the horizon.
BizCover helps tradie small business owners throughout New Zealand to reduce the risks to their business via tradie insurance*. Visit our dedicated online destination for tradie insurance in New Zealand get trade insurance for your business without drama and get on with your day. If you’d like chat you can find us at 0800 249 268.
*This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. © 2022 BizCover Pty Limited, all rights reserved. BizCover Limited is owned by BizCover Pty Ltd (ABN 68 127 707 975)
