Why and when to raise prices
It doesn’t matter what your Facebook group, colleagues, or friends say you should charge. What matters is that you are being paid for adding value to your customers’ lives.
Most people may not even know the true value of what it is they’re offering. For example, if you’re a baker, you probably don’t want to pay a lot for a good you can easily create yourself–but someone who doesn’t know how to bake may see a get of value from being able to buy the perfect pack of muffins for their family, and will gladly pay for it.
The first way to tell if you’re pricing high enough is asking yourself if you’re easily making ends meet. If you are working hard and investing time into your business, you need to feel financially secure. It shouldn’t be hard to pay yourself and employees what they’re worth, while covering overhead.
Second, think about how busy you are. When you’re so busy you can’t keep up with your business, it’s time to raise your prices.
A lot of new businesses start their pricing on the lower end; they’re just starting and they haven’t had the time to innovate their product as much as they want, or they’re not well known enough to charge those premium prices. But when the demand has gotten bigger than your ability to supply, then you want to start increasing prices.
The third reason you should raise your prices is to portray value. People frequently equate value with price, when people are looking at your services or products, they are basing the value on your price. By under-pricing yourself, you are subconsciously devaluing yourself. So if you’re selling too cheaply and your customer is looking for a really good product or service, they will probably assume that you’re not a good fit for them.
Your goal is to bring your customers a lot of value without being cheap—without selling yourself short!
You might be thinking, I don’t want to disappoint my current customers by raising prices. This mindset of worry and fear will make it hard for you to charge what you’re worth. Dispel this fear by reminding yourself that you can’t keep offering excellent products or services if you can’t afford to stay in business and pay yourself. And remember, other successful businesses are doing the same thing. Other businesses are charging what they need because they have a similar budget, a similar overhead, and they too need to make a living.
What can you charge?
Start by thinking about your overhead. This is your rent, your taxes, health insurance (if self-employed), supplies materials, utilities, technology, etc. What is your monthly costs just to upkeep your business? You also may want to include a % of your income that you want to invest back into your business in this category.
Next, decide on 3 yearly profit numbers: the minimum profit you want to make, a healthy profit you want to make, and a ridiculously high profit you’d love to make. Write down these 3 numbers, then run a few calculations.
What would you need to be charging to earn each of these profit levels (assuming you continue with your current sales volume)?
Writing these out on paper will allow you to see what’s possible.
To create the lifestyle you want, it’s also possible you’re outgrowing your target market. If the people that you have been selling to can’t afford your new prices that will enable you to earn the profit you want, they’re not your target market. Pretty much every business evolves as it grows.
In order to level up your business, you might have to give up on customers that aren’t ready to pay certain prices. That doesn’t mean there won’t be more customers down the road raving about your product or service who are more than happy to pay your new, higher prices.
On the other hand, there might still be lots of current customers who are happy you’re charging what you’re worth and will gladly pay the higher prices. So don’t expect the worse.
Delivering the news to customers
Even though your prices are going up, you can still deliver the news to customers in a positive way. You can approach it in a few ways.
First, be reasonable with your increase to current clients. It can be extremely difficult for your current clients to wrap their brain around if you’re doing the exact same thing but for double the price. So if you sell physical products, the way you could potentially double your rates or make a really big increase is if you “repackage” a product differently; maybe you add something to it or make it better in some way. If you provide services, don’t double your rates for current clients, because that will lead to tension, confusion, and them probably leaving. But charge what you need to for new clients because they will probably still go for it.
Next, give them a notice in advance. Tell them you’re raising rates effective in the next 15 or 30 days, rather than tomorrow.
You may also want to include in your contracts enough information about when and how you can raise your rates; be sure that you understand your contract so that you’re not breaching it at all.
For ongoing clients you’ve been performing services for, remind them of the accomplishments you’ve made in the past with them. Tell them you’ve really enjoyed accomplishing these things and you’re looking forward to continuing with them.
Another way you could rephrase raising rates is telling clients you are working specifically with them and only a few others; you want to be more focused on them and since you are reducing your other workload, you are increasing rates for that reason as well. In that way, you are able to phrase the rate increase as a positive thing for them as well as for you. Everyone wins in this scenario.
So, go for it!
Using all of this information as food for thought, you can navigate your price increase much more successfully. You deserve to be paid for your value, and you should never be cutting yourself short.
Learn more about pricing strategies in this excellent guide by QuickBooks. If you have any questions or would like consulting about your business pricing, don’t hesitate to reach out to our team!
