Security alarm dealers handle rate increases carefully. No dealer wants to lose current subscribers to lower priced competitors. However, inevitably rates must change as the costs of goods and services do not remain stagnant. In this post, we share some of our best practices, developed from years of working with companies to implement rate increases. We will help you navigate the balancing act of maintaining current customers while addressing the realities of business economics.
Contract review
Review your monitoring contracts to ensure that there are no restrictions barring you from raising rates. If a contract limits when or by how much you can increase rates, you will need to take that into consideration. Your contracts may also determine how and when you communicate rate changes.
Research
Prior to a rate increase, you will want to research the competitive landscape. How do your prices compare to competitors in your local market? If your rates are aligned with or higher for comparable services, it may be difficult to justify an increase.
The next step is internal research. If you have been in business for a decade or more, you may have never incr
eased older accounts. Export your recurring charges to Excel lining them up by type and amount. If possible, include the date and amount of the most recent rate increase. This will give you a quick assessment of the number of accounts that are overdue for an increase or below current market levels.
Selectively increase rates
Across the board rate increases are usually a bad idea—selective increases work better. Some of the customer groups that deserve attention are:
Recently added accounts—It’s usually best to NOT raise rates for newer customers – those that signed on in the last 2-3 years.
Low-rate accounts—You may have ‘friends & family’ discounted rates that you’d prefer not to raise, but other older accounts with low rates may need to be increased by more than a dollar or two to get them to fair market rate.
Autopay accounts—The beauty of an account set up to be billed to a credit card or bank account is that they never show up on your aging…so you never need to chase them for payment. That’s a big time-saver, and for that reason you may not want to bump up rates for autopay accounts.
Implement and manage
Most people are reasonable and understand that rates cannot remain the same forever. How you communicate your increase is critical to your success. Send a short letter 1-2 months in advance with some of the following key points:
- Thank the customer for their business and loyalty
- Make the case – number of years without rate increase percentage increase in costs and competitive costs if applicable
- A request to call your office with any questions or concerns (provide a contact person’s name if possible)
You can test the increase and messaging with a small initial rollout. Send increase letters to a very small group of customers first so that you can gauge reaction to the increase.
Be ready with some mitigation options or suggestions, such as a free service call, or a year of free system maintenance, if you get calls from unhappy customers. You may also offer to waive the increase entirely if the customer signs up for autopay.
Carefully track your cancellations so you know how successful this effort was. If you handle it right, you should end up with more margin and a reasonable attrition rate.