Raising prices after you buy a business

Some companies you look at will have prices that haven't changed in years. A long-time owner may have held them steady out of loyalty to customers, or simply never got around to it. It's tempting to fix that in your first week.

Careful price increases can be one of the quickest ways to improve a company you've bought. Done too soon or carelessly, they can also drive away the customers you just paid for. Here's how to do it well.

Don't build the purchase on a price increase

Pay for the earnings the company has today, not the earnings you hope to create. A lender looks at the company's actual results when it decides how much you can borrow, and the loan has to work at today's prices.

If a price increase works, it's your reward for the risk and work of owning the company. If you've already paid the seller for it, or need it just to make the loan payment, you have no room for the months it takes to get the pricing right.

Learn three things first

Give yourself a few months before changing prices. Use that time to learn:

• What each kind of work really costs. Labor, materials, fuel, insurance and drive time, by type of job or service. You may find that some jobs barely break even while others are priced about right.
• What the market charges. Look at published prices, listen to what customers mention when they compare, and ask your employees and suppliers what they hear.
• What you've promised. Read the company's customer contracts and service agreements. Some fix a price for a set term or require written notice before any change. Our post on contracts that may not transfer covers how to review them.

You'll also learn which customers are on old rates the previous owner set years ago, sometimes as personal favors. Those accounts need the most care.

What not to do in the first months

• Don't make a price increase the first thing customers hear from you. Introduce yourself, keep the service steady and let them see that the company is in good hands.
• Don't raise everything at once. An across-the-board increase gives every customer a reason to shop around in the same month.
• Don't cut service at the same time. Fewer visits or new fees on top of a higher price feel like two increases.
• Don't hide it. A new "service fee" buried on an invoice damages trust faster than an honest increase.
• Don't break promises made during the sale. If you told the seller or the employees that certain customers would keep their rates for a while, keep your word.

One Florida caution. After the Governor declares a state of emergency, as happens around hurricanes, section 501.160 of the Florida Statutes prohibits unconscionable prices for essential goods and services in the declared area. There are exceptions, such as increases caused by your own added costs. If a declaration covers your area when a planned increase is due, the safest course is to hold it, or to ask your attorney first.

Start where the risk is lowest

Not every price carries the same risk. A sensible order:

1. New customers and new quotes. They never saw the old price, so there's nothing to compare.
2. Services clearly below market, or where your costs have risen the most.
3. Extras and urgent work, such as after-hours calls or add-on services.
4. Recurring plans, at renewal, with proper notice. Our post on recurring revenue explains why those customers are worth protecting.
5. Your largest customers, one at a time, in a conversation rather than a letter.

Test before you roll it out

You don't have to guess how customers will react. Try a change on a small group first and watch what happens.

For new work, track how many quotes you win before and after. Say you won about 6 of every 10 quotes at the old prices and 5 of 10 at the new ones. You won fewer jobs, but each pays more. Compare the gross profit (revenue minus labor and materials) on the jobs you won, not just the count.

For recurring customers, it helps to know how many you could lose before an increase stops adding revenue. Here's a hypothetical pest control company with 800 customers on monthly plans:

	Before	After
Monthly price	$50	$53
Customers	800	755
Yearly revenue	$480,000	about $480,000

At $53, the company could lose 45 of its 800 customers and still bring in the same revenue, with fewer stops to make each month. If it loses far fewer than that, the increase is working. If cancellations climb toward that number, slow down and find out why. Ask the customers who leave; their answers are worth more than any guess.

Give each test two or three months. Some customers don't react until they see the first new bill.

How to tell customers

How you announce an increase matters almost as much as its size.

• Give notice. At least as much as the contract requires, and enough that no one is surprised by a bill.
• Give a plain reason. Rising costs for labor, fuel and materials, and how long prices have held steady, are reasons customers can understand.
• Say what stays the same. The same technician, the same schedule, the same guarantee.
• Make it personal for your biggest accounts. Call or visit. A letter alone can feel like a form.

A short note might read: "Our costs for labor, fuel and materials have risen, and our prices haven't changed in several years. Starting next month, your monthly service will be $53. Your technician, schedule and service stay exactly the same. If you have any questions, please call us."

Prepare your team

Your employees will hear the questions first, on the phone and at the customer's door. Tell them before customers find out, explain why, and give them simple words to use. A technician who's caught off guard can lose a customer in one conversation. Our post on key employees covers why the people customers trust matter so much after a sale.

After the first increase

Review prices once a year, at a time customers can expect. Small, regular increases are easier to accept than a large jump after years of nothing, and they keep you from ending up where the previous owner left off. Keep watching the numbers that tell you how it's going: quotes won, cancellations and gross profit by service.

What to do this week

• If you're still looking: ask the seller when prices last went up, how customers reacted, and whether any contracts lock in rates.
• If you've just bought: list the company's main services and estimate what each one really costs to deliver.
• Read every customer contract for price terms and notice requirements.
• Pick one low-risk group, such as new quotes, to test first, and decide what you'll measure.