Announcing a price increase to clients is a subject every digital agency has to confront from time to time.
Agencies may wish to raise service fees because they:
- Need to meet rising costs such as higher wages and software as a service (SaaS) fees
- Are expanding the services they offer, which means investing in new skills, employees and technologies
- Weren’t charging enough initially, perhaps because they were new and kept prices low to win their first customers
- Found out competitors are charging more for similar services
- Are exceeding clients’ expectations substantially
- Increased their team size significantly, thus providing more value to customers over shorter periods of time
Regardless of the reason, raising fees is a sensitive topic with clients. Here, we examine key considerations in announcing a price increase and provide the perfect price increase letter to customers for your agency to use.
1. Communicate the change to your team first
Mary Lister, Content Strategist at internet services provider Starry, says it’s critical for agency owners to first tell their own employees about cost adjustments.
“Increasing your cost will impact every team in the business, whether directly or indirectly,” she says.
“While your customer service team needs to know how to answer questions, your marketing and sales teams will need to understand how to explain the new pricing to existing clients and sell it to new customers.”
2. Quickly get to the point
James Rose, Co-Founder and Head of Marketing at Australia-based Content Snare, says it’s unfair to force clients to wade through a huge chunk of text in an email to learn about a price increase.
It’s better to be upfront about it in the first few sentences rather than bury it at the bottom of a message.
“If you waste too much time on fluff and preamble, your client will see right through it. As they read it they’ll be thinking ‘come on, what’s the bad news?’,” Rose says.
Instead, it’s best to just get to the point quickly – tell them how much their prices will be going up by, what they will be afterward, and when this all takes effect. If they want to read the whole email and find out more, they would.
3. Consider calling VIP clients before sending an email
In a world where client communications and marketing processes are becoming increasingly automated, there’s something to be said about mustering the courage to call customers about a price hike.
Nykea Behiel, Director of Brand & Experience at Vendasta, says while this may not be realistic for every agency, they should consider calling at least their biggest clients ahead of a formal announcement to customers broadly.
“Your best customers will more than likely appreciate you taking the time to personally call them about a price increase more than they would if the same information was provided via a generic email,” Behiel says.
It also gives you the opportunity to directly explain to them why you’re increasing your fees, the results you’ve generated for that client, the value behind the increase, and address any concerns they may have.
4. Reach out multiple times and in different ways
It’s worth using multiple methods of communication to announce a price increase so that customers don’t miss the announcement. Other alternatives to email and phone include direct postal mail, Lister says.
“I recommend using the same branded template that you use for any other company announcement, like a product update, fundraising announcement, event invitation, or discounted offer,” she says.
Behiel suggests agencies could also publish a blog or create a frequently asked questions (FAQ) page that could answer hypothetical queries and provide useful context about the price increase. This can be linked to from marketing newsletters and invoices.
5. Provide plenty of notice
In addition to providing multiple notices, it’s best practice to provide ample lead time for a price hike to take effect.
“The best practice here should be about two months from the price increase, particularly if it is a subscription or monthly retainer,” Lister says. “This allows your customers to cancel without violating any of your policies, or adjust their budgets accordingly.”
6. Remind them what they get from you
No matter how much lead time and transparency an agency provides about a price increase, there may be clients who choose to seek a cheaper service.
To prevent price-related churn, Rose says it’s important to remind customers of the quality of service and results your agency is providing.
“If you’re doing your job well, replacing you with a cheaper competitor could backfire for them. It could take months or years before a competing agency knows your customer’s business well enough to provide the quality of service that you do,” Rose says.
Behiel agrees and adds nuances in how price increases are communicated can make all the difference in helping clients recognize the value of a digital agency’s services.
“Communicate price as an investment rather than a cost. Never underestimate the power of language and vocabulary in shaping someone’s perceptions,” she says.
“Show them the value you have generated for them, such as increased website traffic, a higher Google ranking, a killer brand, and more leads.”
Agencies should also point out new services or additional value local businesses are receiving in exchange for making a higher investment.
For example, if an agency hired an experienced copywriter and photographer to boost the quality of its content services, that should be included in the price increase letter to customers.
7. Don’t be apologetic, but express your gratitude
Expressing your appreciation for a client’s business can also be an effective way to take the sting out of a price increase announcement.
“Tell your customers you would never have come this far without them and that you look forward to helping them achieve even more success,” Behiel says.
It’s only natural for business owners to feel guilty or concerned about raising rates, but they shouldn’t be.
“Don’t be apologetic about it and don’t make it a bigger deal than it is. Costs increase over time and agencies deserve to be compensated for the value they’re bringing to local businesses,” she says.
Ideas to reduce price-related customer churn
Regardless of how well an agency owner executes a price increase announcement to customers, some local businesses won’t be able to absorb it.
This is especially true given the pandemic isn’t yet over, and border closures, travel restrictions, and sporadic lockdowns or limits on gatherings are hurting mom-and-pop shops that are heavily reliant on tourism.
Hence, Behiel suggests agencies have an open mind on how they can help businesses manage a price increase on a case-by-case basis. Some practical solutions to assist struggling businesses include:
- Offering an extended payment plan or a longer transition period, if price increases are significant
- Letting clients pre-pay their monthly retainer or an upcoming project at the current price
- Giving customers a limited-time offer to receive the new product with fewer options at the current price
- Offering additional education or support to take advantage of any new features or services offered as part of the price increase
- Reducing services provided but keeping the same rate
Just say no to some clients
Lastly, it’s inevitable some agencies will face situations where some clients are unwilling to pay higher fees but are expecting the same level of service. There is also the probability of clients threatening to leave for a cheaper option and trying to negotiate a better deal.
In such situations, it’s best to be frank on how the relationship is costing your agency money, and you need to increase the price so that it makes economic sense for you to keep working with that business.
“You don’t want to commoditize yourself and compete on price alone. When that happens, it becomes a race to the bottom,” Behiel says.
If they are still not willing to accept a price increase or some form of compromise, consider letting the client go if it’s feasible to do so, or if you are confident they will be replaced with a higher quality customer.
“Every industry needs a McDonald’s, a Michelin-star restaurant, and something in between. Be what you are, choose your position on the slider, and promote it proudly,” she adds.
“Saying no makes way for yes. Culling clients that don’t fit your ideal customer profile can be painful, but it can also be very rewarding.”
Short sample letter to inform customers of price increase
The below is a sample price increase letter or email to use for your agency. Tweak it as required for your circumstances.
Subject: Price Changes – [insert month and year]
Preview text: We’re investing to help you grow
Dear [insert first name],
I am writing to let you know our marketing service fees will be increasing [insert X percent], effective [insert month]. The new price will be reflected in your invoice from that month.
Why are our fees rising? Like any business, we are facing higher operating costs in the current economic environment. At the same time, our agency is also expanding its resources to better serve customers.
I understand no-one likes reading about a price increase, however, I am confident that your increased investment with us will yield even better results for your business.
I would like to call out some of the key results we have delivered for our clients in the past 12 months:
We love to see our clients grow and encourage you to visit [insert hyperlink] to learn more about what we are doing to support your growth in the months and years to come.
Thanks again for your business and please contact me if you have any questions or concerns.
[Name of agency owner/manager]
Announcing a price increase isn’t easy. However, it is necessary to support an agency’s growth ambitions and offset rising costs resulting from inflation and other factors, and to keep a healthy bottom line.
- Before announcing a price increase, tell your team first
- Create additional communications collateral such as a blog or an FAQ page, on top of an email, to explain the change
- Considering calling your most important customers to inform them about the price increase before making a formal announcement
- Communicate price as an investment, and remind clients of what they have been receiving for that investment by giving examples of some of your biggest accomplishments
- Show empathy and try to accommodate local businesses that are genuinely struggling to pay more. You never know they could become your biggest customers one day because you stood by them
- Consider letting go of clients who aren’t willing to make a compromise on price or the amount of service they are receiving.