It is always a delicate balancing act to keep prices as low as possible for clients while also growing your business, which makes the tightrope even trickier to navigate when the costs of your raw materials go up. Do you absorb the costs yourself? Or do you pass them on to your clients?
If you choose the former, there is only so long you can absorb these costs because it becomes unsustainable. At some point, these costs will have to be passed on, but how can you do this without losing valuable clients?
Fortunately, there are some tactics you can put in place that will help ease the impact on your clients and allow you to continue to grow your business.
Get in front of the message
A large component of transferring the rising costs of raw materials onto clients is how effective your communication, marketing and public relations are. If you just raise the prices without saying anything, questions are going to be asked and some clients are likely to turn their back without even asking why.
Most clients are aware that indexation, supply chains, transportation costs and labour expenses all rise annually, so these price rises are inevitable. It is better to regularly put small price rises in place rather than hold on until you must hike the prices up dramatically.
Get the message out through your social media platforms, email campaigns and other formats that prices will be rising and explain the reasons why. Include information in your terms and conditions that prices are subject to change depending on external factors that could result in costs going up.
If you are not proactive with your messaging, it opens an opportunity for your competition to control the message and position your brand as the villain. Be open, honest and transparent and your clients will largely respect you and understand the reasons why.
Provide estimates, not quotes
If you are dealing with a large-scale project like a home or business construction, your business could potentially lose thousands if the cost of materials rise after the contract has been signed but before you have purchased the raw materials.
One option is to provide an estimate with the right information in terms and conditions. An estimate delivers approximate costs to your client, and it is not binding if you clarify payment terms in the Ts and Cs and outline that this estimate could be subject to change if material costs do rise.
This means your client will be fully informed from the outset that the prices given are only an estimate and they will understand the reasons why they might change. The wording in your estimate should include words to the effect that the prices are not guaranteed, that the estimate has been put together based on the client requirements at the time and that actual costs could change by the time the project is ready to proceed, negotiated or finalised.
Another way to protect yourself would be to clarify in your quote how long your prices can be fixed for. By being transparent about a potential increase on a date in the future and being up front with the information from the outset, you are helping your potential client to prepare correctly for cost fluctuations and showing that you have a clear understanding of the market.
Are verbal agreements legally binding in Australia?
If a client has given you the verbal go-ahead without signing a contract and material costs then change, the client may still be locked into the contract. For a verbal contract to be legally binding in Australia, there must be an offer and acceptance, both parties must have agreed on the terms, must intend to be legally bound and that there is going to be an exchange of money, goods or services in the transaction.
These waters can get particularly murky, so for further guidance, speak to the team at Kingsbridge Consulting.