I want to give you permission to raise your prices.
Actually, I want to give myself permission to raise my prices, and you are invited to listen in and glean any of the insights that drop out of my mouth as I wrestle through some of my biggest objections to taking what I’m trying to convince myself is a necessary step in my business growth.
Let’s open the mental mailbag:
Dear Dave (me),
I’ve been running my business for over a decade now. My skills and services have evolved, I’m providing more value to my clients than ever before. I’ve raised my prices incrementally a few times over the years, but I know I could and probably should raise them a lot more, but I’m nervous.
Is it fair for me to raise prices?
How will others receive the change?
What if my clients leave me for someone cheaper?
Am I actually worth it? What if I can’t deliver value to match the new price?
Is this a right move?
Yours truly,
yourself
Okay let’s slow down and take these one at a time.
Is it fair to raise your prices.
Is it fair to whom?
Let’s flip this real quick. Is it fair to you? Are you bringing home a fair amount of money for the work you are putting into your business? If you’re slaving away, creating value for your customers, but feel like you aren’t bringing enough value home to your spouse and kids, then you probably need to make an adjustment. It’s totally fair ask for compensation for the goods and labor and expertise you provide, and add enough margin so you’re not just breaking even. It’s okay to make a profit. That’s what business is. That’s one of the main reasons you are doing what you’re doing. Let’s not lose sight of that.
If you’re slaving away, creating value for your customers, but feel like you aren’t bringing enough value home to your spouse and kids, then you probably need to make an adjustment.
I did a whole post on how to set your internal rate. You need to calculate your cost of living and work backwards to figure out how much you need to make per hour in order to support yourself and your family. Now, this is your internal rate – not what you are charging your customers. This is just what you are paying yourself out of your business. Make sure you’re charging at least that much. But realistically –conservatively – you should charge twice that amount in order to account for the fact that people aren’t going to be throwing cash at you simply because you’re working.
How many sales can you actually generate and support in a certain amount of time? If you are a web designer, it could take you one week of active work to complete a project, but you secure new clients clients irregularly. Sometimes you get 3 projects a month, sometimes you only get one a month. There’s lots of things you can do to market yourself and encourage a purchase, but how often your customers buy is ultimately out of your hands. It’s in your best interest for you to charge enough for that one week of work to hold you over for two weeks, or even the entire month.
Okay, that’s fair for you….
But is it fair for your clients?
Why not? They aren’t paying you for time. They are paying you for value. Whether you build them a website, fill their belly with tasty food, make their house more beautiful, help them learn a new skill – It doesn’t really matter how much time it takes. Often times, the less time it takes for your clients to achieve their desired result (expedited service), the better. I did a whole post on this as well. If you are offering them a fair return on their investment, then that’s fair.
But I’m charging a certain rate now…
What will people think when I increase my prices?
I don’t know. You can’t control what people think. But think about what you think about when you encounter price changes for the things you purchase:
Eggs are an extra 50 cents a dozen. You’re not happy, but you know prices have been going up across the board, so this isn’t shocking. You like eating eggs, so you buy the eggs.
Google Workspace is changing their prices. I’m tied into the service. I like it. It would be a pain for me to stop using it and migrate to something else for nominal cost savings, so I’ll pay the increase. But I know some people who wouldn’t do that and decided to cancel their subscription. That’s an option too.
Sometimes I’m excited when there is a price increase, because it comes with increased value, or it’s accompanied by a lower cost option that I can take advantage of if that’s a better fit.
Sometimes I don’t even know there’s a price increase. If I’m a brand new customer, it doesn’t really matter what things used to cost. I likely don’t even have the information available. I’m making my decision to buy or not buy based on if I think it’s worth it now.
Sometimes I decide it isn’t worth it, and I cancel or downgrade my service (or not buy as many eggs and start eating more oatmeal instead).
People will respond differently to you price changes. Some will roll with it, some might celebrate it, and some will walk away.
If and when people do stop buying,
- It’s not personal, and
- Good!
And not “good riddance” good. You’ll actually be in a better position. If you raise your rates and some people stop buying, you’ll make the same amount of (or more) money by doing less work and spending less on overhead.
Double Your Rates for Doubled Success
This is straight from Peter Shallard’s article, Why People Want to Pay You More: 7 Reasons Doubling Your Rates Doubles Success.
Peter share’s a story about how his dad’s friend ran a camera shop and provided photo processing (Note: this is back when dinosaurs ruled the earth). He realized he was undercharging for film developing and decided to double his rates. 50% of his customers never returned. But…. The other 50% of his customers shrugged, realized they’ve been getting a steal for a while now, and swallowed the increase. The storeowner cut his workload in half while maintaining 100% of his revenue. And what he was now saving in material costs, he reinvested into redecorating the shop and enhancing the customer experience, attracting more higher paying clientele.
And then digital photography was invented and he went out of business completely.
I’m kidding, the article doesn’t talk about that. But I imagine whatever a happened, this guy was in a much better position to deal with these industry changes as a highly profitable small business owner instead of a burning-out-to-break-even small business owner.
Shallard presents some other interesting benefits customers experience when you raise your prices:
Higher prices increase customer focus and investment
If someone is choosing to pay $1000 and hour for coaching, they are probably going to pay attention and take action on the guidance they receive.
If someone chooses to pay $100 a month for a premium gym membership instead of $10 for Planet Fitness, they are probably going to be a lot more motivated to get to the gym and take advantage of the classes and training available to them.
Or they are just filthy rich and price isn’t a factor for them, in which case – cool – good for them, and better for you.
Raising your rates might put you out of reach of lower budget shoppers. That’s okay. You are a small business owner. You are not Walmart. You don’t have the scale and the infrastructure required to be the low-cost-leader.
You are not Walmart. You don’t have the scale and the infrastructure required to be the low-cost-leader.
People who need what you offer will find it for cheaper somewhere else, or they won’t. Maybe they’ll shop around and realize you are still a great deal. Or there is no one else they really want to do business with and what you have is really important to them, so they’ll figure out a way to make it work. They’ll eat more oatmeal instead of eggs.
And if it’s really important to you to serve people who simply cannot afford your higher rates, you still can. By charging more and achieving greater profitability, you will be in a much better position to serve others. Establish your own financial stability, and then you can introduce lower cost options. Or, heck, you can give away your services for free if you’d like. But if your business is not sustainable, it’s not going to be around very long for you to be able to serve anyone at all.
Okay, I get it, economically, mathematically, it makes sense for me to raise my prices…. Can I deliver enough value to my customers to justify a higher price? Am I actually worth it?
Be worth it.
If you’re just going to sit there and not put in the work, I’m not going to sit here and say, “Oh honey, of course your worth it! You’re the most precious flower in the the garden and you’re worth a million bajillion hugs and cupcakes!”
It doesn’t matter what you charge. You’re probably going to wrestle with this question of worth. And if you don’t put in the work to deliver a return on your customer’s investment, they get to say whether or not they think you’re worth it.
In this case, a little insecurity is a good thing.
I’ll speak for myself now: I’m not the most confident person in the world and part of me has my doubts about my current rate. If I doubled my prices, you know what would happen? I’d be terrified. And that would drive me to do everything in my power to deliver the best possible experience for my customers. I would make sure I’m worth, and because I have a tendency to undervalue myself, that means I’m going to way overdeliver on my customer’s expectations, they will be delighted, they will talk about it, and drive more business in my direction. Because I was scared into being awesome.
From Shallard:
Being awesome is the only secret to business success.
Pumping up price is the psychological permission you need to innovate your product like crazy. Your fear of inadequacy is real. Innovation will allow you to transcend that fear. Innovation will revolutionize your business and dazzle your customers.
Then, they’ll talk about it. Word of mouth will take off and you’ll magically attract more customers than your old, piddly rates would ever have allowed.
Why People Want to Pay You More: 7 Reasons Doubling Your Rates Doubles Success
What’s at stake?
If you don’t raise your rates – if I don’t raise my rates – my business will never be more than just okay. I’m already near project capacity. So I can stay here – slate full and not much more opportunity for growth unless I work beyond capacity, launch new revenue streams, or systematize things so my work becomes more efficient and more passive (all valid options), OR I can ask for more money and see what happens. Doubling my rate is the fastest route to increased profits, and it comes with a ton of upside for my clients.
But I’m still not sure.
Let me ask you this… Dave. At your old job, did you ever wish for a raise? Did you feel like you were worth more than what you were being paid, or wish you had the opportunity to prove you had more to offer?
And that was when you were an employee – when you served one specific role (and other duties as assigned). Now you’re running a whole freaking business. You are providing value to your clients and managing all of the other stuff. You are thinking about increasing your prices. You would like a raise. All you have to do is look in the mirror and say “Why not?”
But as I alluded to earlier, increasing your prices isn’t the only way to increase profits. You might have more bandwidth to take on more clients, in which case you need to focus on improving awareness and attracting more business. Or maybe you need to take a look at what’s going out and see if you can reduce your expenses.
There’s a lot of moving pieces in a business. If you could use a fresh pair of eyes and get some help evaluating your best opportunities for business growth, I’d love to have a conversation and learn more about what you have going on. Reach out at selfemploymentsidekick.com.
