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Inflation is far from slowing down. Despite optimistic estimates from some economists earlier this summer, consumer prices have risen 8.3% through August. The effects of inflation are being felt throughout the economy and can make negotiating contract renewals with your current clients challenging.
Rising prices may incentivize you to pass extra costs onto your current clients during contract renewal negotiations. While this may seem like a great idea, it can meet significant resistance. A more sophisticated case than “my costs have gone up” will have to be made. Emphasizing the value of your service while making changes to inspire and motivate your clients will better rationalize increases and ensure inflation doesn’t take a significant bite out of your profits so your business can have stability and continued growth.
Here are three tips to make the most of contract renewal negotiations during challenging periods of inflation:
1. Offer superior services and emphasize growth
Citing inflation is not a good enough reason to justify a price increase for the same services offered at a lower price in the past. Don’t just blame inflation. Instead, focus on offering superior services to your clients in ways that don’t dramatically increase existing costs for your business.
Your clients already know that inflation is happening, and they’re feeling its effects. Rather than drawing attention, highlight your business’s increased capabilities over the previous year, and have the metrics to back it up. Show your clients that your services are superior and you are constantly improving and seeking to offer them more. Showing increased capabilities and growth over time will help justify any necessary price increases.
A straightforward way to offer your client superior service while minimizing additional costs for your business is by offering a longer-term contract. As the economy continues to recover over the next couple of years, a longer-term contract will allow them to count on an agreed-upon price into the future, removing the uncertainty that comes with price fluctuations. A longer-term contract also allows you and your client to plan for any rate increases related to inflation in advance. Negotiating with the long-term picture gives you the security that comes with maintaining a long-term client while providing you with the flexibility you’ll need to adapt to the constantly changing economy.
2. Capture your client’s imagination
Rising inflation does not mean you have to enter contract renewals with a pessimistic attitude. Take this period as an opportunity to recapture your client’s imagination. Don’t stop at offering them something more. Offer something new to your clients that inspires them. You’ll be linking yourself and your business to the growth and future of your clients.
Consider bringing a new team member onto your client’s account. The unique perspectives and fresh ideas that a new team member can provide will inspire your client and turn their thinking towards growth — getting a new team member involved with an existing account has the added benefit of showing your client that you are invested in their success and have the resources required to service their needs.
Remember that your clients feel the pressures of inflation as much as you are. They may feel motivated to cut costs and save as much money as possible when renewing contracts with you. Take this situation as an opportunity to shift the conversation towards inspiration. Show them how your services can help them transform this complex economic moment into an opportunity for growth and expansion.
3. Don’t be blinded by inflation
Not all businesses are equally sensitive to the effects of inflation. Knowing this helps you to make smart decisions about how to adapt. While inflation is likely a severe concern for most entrepreneurs, you should not let your fears about inflation overshadow your long-term thinking about your business.
When negotiating renewed contracts during periods of inflation, it is essential to think in the long term. Minimizing the impact of inflation by charging more for your services in the present can make short-term sense, but these increases can harm your valuable long-term relationships with clients. Don’t become short-sighted; always remember that your client’s predicament is similar to yours. They also have employees and family to consider and are weathering inflation just as you are. Approach your negotiations with empathy for your client, and think strategically about all factors involved: don’t be blinded by inflation.
A great way to start thinking about balancing your concerns about inflation with your company’s other interests and challenges is to conduct a systemic review of your company’s internal and external strengths and weaknesses. While this could take the form of a traditional SWOT analysis, you need not feel constricted to use this or any other structured method of thinking. You might want to consider other systems such as PEST, PESTEL, or STEEP; as the Harvard Business Review notes, you can also devise your own system of thinking, starting with internal aspects of your business and then moving outward to consider external restraints and opportunities.
A systemic overview of your entire business will allow you to understand how inflation challenges your business from an objective point of view. Your analysis can form a strong basis of fact to base your actions on inflation and other challenges facing your company. You can react to the current moment while keeping the future within your view.
You’ll make it through — help your clients do the same
Renewing contracts during periods of inflation can be a huge challenge for any business. These renewals can be especially difficult for founders and newer companies, who may have already felt more sensitive than most. While high inflation does present many challenges, it can also be an opportunity to inspire your clients and assure them that you are growing and bringing them more, despite the challenges. Entering negotiations with a confident, growth-centered mindset will not only help you secure the price increases you may need. You will also be strengthening the relationships with your clients, and these strong relationships will continue to benefit your business regardless of how long inflation holds on.