It’s that time of the year again – the time when you’re looking over your books and seeing what worked and didn’t work. You’re thinking about goals for the year ahead and wondering how you can improve profit in your company. And one simple solution is staring you in the face: you can raise prices.
Just saying it out loud makes business owners shudder. Raising prices may mean more cash in the hand, but it also means having to transition clients from your old pricing scheme to the new one. When doing this you can meet resistance and downright hostility from previously loyal clients. It can be an extremely demoralising process, and if done badly can result in lost business – exactly what you don’t want.
But business decisions such as pricing shouldn’t be made based on whether they will piss off your clients. So if you’re taking the plunge and raising prices, here are some tips to make it run smoothly:
Tip 1: Raise rates incrementally
You don’t have to introduce a new rate in one hit. You can use different technique to introduce a rates increase slowly, in order to allow your clients to adjust to and better manage any drop-off. For example, if you offer a series of package services, increase the price of one package at a time over a 3-6 month period.
One technique I’ve used before in my own business is to introduce rates rises only to new clients for a time, then, incrementally raise rates to different clients over time. I found this works exceptionally well if you’re worried about losing some of your major clients – you can introduce it to them individually, instead of worrying they will all leave you immediately. This spreads your risk.
Tip 2: Add Features
As you raise prices, you might consider offering additional value to your clients. This can help to ease the news. If I’m thinking of raising prices, I will use the opportunity to review all my packages and services, and see where I can improve or add to the features. By offering more value-added features, I can continue to stay competitive while moving to more of a value-added pricing model.
Your new features don’t have to be complex, time-consuming or costly. For example, being able to offer a client some kind of monthly report might take you 2 minutes to create using your project management software, but it can add a tremendous amount of value.
Tip 3: Offer Three Tiers
This is an old marketing trick – offer at least three package levels. Level one is a bare bones, basic package: for example, at a web design agency it could be a four-page template website. Level two is a mid-priced package – a six-page website, plus social media icons, plus copy, plus business card design, etc. And Level three is an expensive package with all the bells and whistles added.
Customer psychology dictates that the majority of your clients will choose that middle package, so you’re going to want to add the majority of your price rise and focus your value proposition on that package.
Tip 4: Focus on the Benefits
Discussing your rates increase on your website or with a client in person can feel rather daunting. You aren’t comfortable with your new pricing yet, and you can come off as though you’re trying to justify your prices, which isn’t the best way to present your business.
How can you get around this? By focusing on the benefits.
When talking to clients about a price rise, I don’t like to talk about how this rise will allow our company to become more profitable, how I’ll be able to pay staff a higher wage, or how I can finally afford to buy my husband that drum kit he’s been begging for. I also don’t talk about how hard my staff work or how expensive our overheads are. That comes across as justification, and I don’t want to be in that position.
Instead, I turn the focus back around to the client. I explain how raising prices enables us to better serve them through improved technology, ability to attract top talent, investment in business infrastructure that will allow projects to go faster, and unlocking new features. I focus on the benefits our service brings to their business and the value those services have brought them over the years.
Tip 5: Benchmarking
If you envision lots of pushback from clients about a rates rise, undergo a benchmarking survey before you raise. How are your rates compared to similar sized agencies in your locale or industry? If you’re significantly cheaper, it’s definitely time to increase rates, whereas if you’re more expensive, you might want to look at ways to lower costs instead of raising rates right now.
It’s good practice to go into a client meeting armed with hard facts – so you can boost your argument and be more confident in whatever decision you make!
Tip 6: Just Do It!
Or, you could just rip that band-aid off. It’s scary, but if you’re raising rates, you’ve got to let people know some time.
Send out an email to all your client base, letting them know that from the beginning of the next months, rates are going up, as per the rates rise clause in your contract.
You could also include a short FAQ section explaining why the changes have come about and what the client could expect. (In our book 15 Emails to Keep Clients Happy, we’ve included a template email you could use for your own clients.)
Your clients are with you because they love the work you do, and while you may price yourself out of the market for some of them, you open the door to new opportunities. It’s time to grow your business, embrace your fear, and raise those prices. You deserve it!