Do your prices reflect your worth? If not, it’s time to close the gap
We just recently spoke with a client Siobhan, who owns a PR and Marketing business for small film related businesses, about a new service she was offering and her anxieties focussed around it. She was second guessing everything about this service, and questioning her abilities.
We went through the proposals with her and could see that she had done her homework well, she understood the complexities of the service, she had carefully calculated time and resources and when we drilled down together we discovered that all her fears were really about how much she would charge. She didn’t think a client would pay the ‘real’ price of her service.
This is a common problem for small businesses, and an even more common problem is how to raise prices with established clients. How can you justify an increase? How much of an increase is acceptable? It can be hard to navigate, but we’re going to try and help you work your way through it here.
First of all, when is the right time to raise prices?
It can seem quite daunting to suggest to clients that they should pay more, particularly with long-standing clients who may have been with you through hard times (yours and theirs). How can you justify asking them to pay more for what they see as the same services?
Well the reality is that as their business has grown, so too has the value of the work you do for them. Also, inflation waits for no business, so it’s likely your overheads have taken a hike. Finally, it’s very likely that their rates were worked out with a healthy reduction to secure the work, as time goes by, it’s only fair that you start to close that gap.
Once you have decided the time is right, you need to prepare yourself with knowledge and confidence about your services. Many clients who have been with you over time, will accept a reasonable raise in prices that will allow you to invest in your business and offer a more streamlined service to everyone, including them. Others, however, may resist and you will need to feel confidence in your worth to win them over.
But rather than just randomly deciding to increase your prices, you need to be clear in your own mind about how much you are worth. Siobhan was struggling over her worth, but the facts don’t lie.
Consider these factors:
1. How much is your business currently charging? Have you factored in all current overheads? – these numbers change with time. Are you hoping to expand or improve services? Have industry standards changed, needing more time? How much will those costs factor in?
2. How much is your time worth? And your team’s time, if you have one. Try to remain objective, we all have a tendency to undersell ourselves. Seek objective advice from someone you can trust, if you are really unsure.
3.What are your competitors charging? How does your offer compare to theirs?
4. This is an important one. What is the value of your service to your customers? What are they getting for their money? List the tangible and intangible benefits and put a value on them if you can.
After you’ve established the worth of your offer and confirmed you are currently undercharging, it’s time to go about raising your prices. Remember, you are entitled to so this, you should be paid your worth, but it is also important to consider your clients, they may be shocked, particularly if you have never raised your prices before, remember they are your business, so a combination of tact and diplomacy coupled with the evidence will be required.
Don’t email them.
A one to one conversation in person or on the phone is much more personal, and will give you a chance to address any concerns your client has and explain your position more clearly.
Choose your words carefully.
Prepare in advance what you are going to say, don’t script it, but have a plan of how you will present the change and have your facts to hand. If you can, anticipate what issues that particular client may have and try to offer solutions or explanations.
Pick the right time
You don’t have to change your prices for all your clients all on the same day. Work out what your requirements are (cashflow etc) and try to take into account your client’s work cycle to choose a neutral time.
Update your records
Once you have agreed the new prices with your clients, make sure you update all your paperwork, with new contracts, terms of agreement etc and make sure your staff are up to date as well, so that invoices represent the new footing.
A word of warning
You may lose clients when you raise your prices. That can be hard and upsetting, but if you did your homework properly and you were not being paid adequately for your service, then perhaps it was time for you both to move on.
And more importantly, from the point of view of your business, even if you lose some customers, you will be left with a smaller number of customers who value your service and are prepared to pay what you are worth. Your profits will increase, because the customers you lose are the less profitable ones, and you will have more time on your hands to delight your loyal customers, develop your business or just take a break.
The first time a business raises its prices can be terrifying, so slap yourself on the back and congratulate yourself on navigating the currents successfully.
And what about Siobhan? Did she find the confidence to launch her new service at a fair price? We’ll go back to her story next time and look at how to position yourself with a new service or a new business.