When running a membership-based business, in certain situations, you may need to increase the prices of your memberships to address increasing costs and to ensure the long-term viability, sustainability and growth of your business. This process is particularly challenging if your existing contract with your members is silent on price increases. This article will guide you through this process, offering practical advice on effectively increasing membership prices while retaining your valued customer base.
Evaluating the Need for a Price Increase
Before considering a price increase, do your research. Weigh up the need for a price increase against any potential impact of this decision on your existing and new customers. In deciding whether a price increase is necessary, consider factors like:
- increased operational costs;
- competitor prices;
- inflation; and
- improvements to service offerings.
To assist with this vital step, tools like cost analysis, market research, and member surveys can provide valuable insights.
Understanding Your Current Agreement
If your members are already locked into existing membership agreements, review the terms to see whether you can amend, vary or increase your prices. If the contract does not include a clause that allows for an increase in prices, you may need to explore your options.
Continue reading this article below the formDevelop an Appropriate Strategy
From a legal standpoint, if a contract does not include a clause allowing for price increases, the price is generally fixed for the duration of the contract. Nevertheless, you can employ a few strategies to increase membership fees.
1. Grandfathering Existing Customers
One strategy your business could use when implementing a price increase is to “grandfather” your existing members while applying the increase to new members only. Grandfathering allows existing members to maintain their current membership pricing until their contract expires or terminates. Accordingly, you can avoid customer complaints, maintain member satisfaction and cultivate loyalty during the transition to higher prices.
2. Attract Members to a Premium Tier
To entice current members to accept a price increase, consider creating a premium membership tier that, while priced higher, also delivers additional perks. To enhance the appeal of this premium tier, you could introduce unique features or services that are exclusively accessible to members at this level. This strategy can provide added value to justify the higher price, making the transition more attractive to your existing members.
The key is to ensure that the added value your business provides within this tier justifies the higher price.
3. Expiry of the Existing Agreement
Alternatively, you can wait until the current contract expires with your existing members before you increase your pricing. Once the contract has expired, you can offer to renew the contract at a higher price. This approach is straightforward but requires patience, especially for long contracts.
4. Agree Upon a Variation
Another approach would be to seek your customer’s consent to modify the existing contract by incorporating terms that allow for a price increase. The modified clause should allow you to increase your prices without express consent and allow your customer to cancel their membership if they disagree with the new prices. For this approach to work well, you must obtain the customer’s consent to the change, clearly communicate it and its reasons, provide members sufficient notice to make an informed decision and reassure your clients that they are under no obligation to agree to the revised clause.
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Effective Communication is Key
In these scenarios, it is essential to communicate openly with your members about why a price increase is necessary. Transparency can help maintain trust and goodwill, even when prices increase. You must explain the reasons behind the increase in a way that emphasises the need to maintain the quality of the service or product you provide. Consider using multiple communication channels like email newsletters, website updates, and social media announcements to ensure your message reaches all members.
Let us explore a few communication tips.
1. Provide a Clear Explanation
Begin by clearly stating that a price increase will occur from a set date. Avoid using jargon or complex language, as the goal is to ensure every member understands the message.
2. Justification
Explain why the price increase is necessary by highlighting the costs associated with maintaining the high quality of your services or products. If applicable, mention factors like:
- inflation;
- increased operational costs; or
- enhancements to your offerings.
3. Provide Advance Notice
Provide this information to your members well in advance of the price increase. This gives them time to adjust to the change and make informed decisions about their continued membership.
Amend Your Membership Agreement
To avoid future complications, remember to update your membership agreements so that the terms include a clause that allows you to increase your prices in future with reasonable notice to the customer while allowing the customer to cancel if they do not accept the increased prices. This clause should clearly define the conditions under which price changes can occur. Consult with a legal professional to ensure the clause is fair, transparent, and compliant with legislation.
Key Takeaways
Increasing membership prices without a specific contract clause can be a complex process. Often, you will experience resistance from existing members who are accustomed to the lower price. However, you can successfully manage it with careful planning, clear communication, and legal guidance. If you need help increasing your membership prices, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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