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Bidding And Estimating / Operations / Management And Training / Sales And Marketing
June 2016 Contractor Success

Pitching a Rate Increase

Ask for a raise without losing your customer

May 25, 2016
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As most cleaning contractors know, raising rates on a customer can be very difficult. Often, in the mind of the cleaning contractor, there is the fear that by sending the client a proposal for a rate increase, there is a risk of losing the account. The letter or email just might cause the client to start taking bids.

This may very well happen. But on the flip side of the coin, if your profit margin on an account begins to dwindle as your own costs escalate, it becomes hard not to request some type of rate adjustment.

In reality, there are four outcomes that might occur when a cleaning contractor asks for a rate increase. They are the following:

  1. The client accepts it with little or no hesitation.
     
  2. The client asks to negotiate the rate increase, but accepts a renegotiated increased service charge.
     
  3. The client will not accept a  rate increase.
     
  4. The client begins taking bids.

It can actually be good news if the client begins taking bids. If the bids come in with higher rates that are similar to yours, and the client is happy with your service, then the client likely will keep you. However, if the rates come in significantly lower than your current charge or the increased charge request, than all bets are off.

So how do you successfully handle a  rate increase?

The first step in the process happens long before you even mention a rate increase or before one becomes necessary. If the only time you have contact with your customer is when there is a complaint or a problem with the service—or when you want to raise your rates—the customer will probably deny your rate increase request.

It is vitally important that you have frequent contact and good communication with the customer; it gives the customer an opportunity to see and know you. 

Your goal is to become a part of the client's facility team, not just an outside vendor. Then, when it’s time to request an adjustment, requesting an increase may be easier; if you are part of the team, the door may be open to discuss a charge adjustment when or as necessary instead of having to request one formally.

Here are suggestions that may help with this process:

Provide Reasoning

Do not just ask for a rate increase; rather, provide reasons why one is needed. This is also an opportunity to mention if there has not been an increase in several years, as well as an opening to highlight services you have provided for no extra charge.

Side note: Whenever you provide services for a client at no extra charge, make sure the client knows it. Send an invoice or add it to your monthly invoice with the notation that the work was performed for “no charge.” This way, the client sees and likely already knows you are providing services beyond the scope of your original janitorial proposal.

Consider Your Timing

Timing is very important. For instance, do not ask for the rate increase after budgets for the year have been approved.

Knowing when budget season begins is vital information you need to have. Many organizations have their own fiscal year. It could be June to June, July to July, or January to January. By having good communication with your customer, your contact will inform you when their annual budget season begins.

The Good and the Bad

Sending out a rate increase letter is the easiest way to handle a rate increase—and the worst way to handle a rate increase. A letter turns you into an outside vendor. Your goal, whether it is to obtain a rate increase or address any other issue, is to discuss the situation with your client just like any other member of the team. 

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