How To Raise Your Fees

Posted by on Feb 24 2014

There is a delicate balance between the fee you need to charge for your products and services, and the fee that people are willing to pay for them. But with gasoline, heating, shipping, health care, and other costs rising, there comes a time when you must raise your rates in order to remain profitable.

Most people see their own costs going up and won’t be surprised that you’re raising your fees, too. With proper communication about it, you should be able to raise your fees effortlessly.

Here are 9 tips on how to go about it:

  1. Don’t let fear and limiting beliefs stop you from raising your fees. If you hear yourself making excuses that you know are not true, it’s probably your fears and limiting beliefs raising their ugly head. Some of these include, “All my customers will leave if I raise my rates,” or “I’m not worth the new rate.”
  2. Have a clear idea of where your break-even point is for profitability. It’s not just about what you “need” to make, it should be about what you “want” to make, too. Decide how much money you want to bring into your personal life from your business and how much cash flow you want in your business to float new ventures. Think big; don’t keep cutting your goals just because you feel uncomfortable with big numbers.
  3. Base your fees on what the benefits and results of using your product or service are worth to your customer. For example, as a small business consultant and coach, I help people increase revenue and profit in their business. This has a value to self employed small business owner, and my fees are based on that value. If you can solve their problems, and if the problem is important enough to solve, then they’ll pay you an appropriate fee for that solution.
  4. Base your fees for services on your level of expertise. If your expertise level is high, if you’ve put in many years of study and have lots of experience, you’ll be able to charge higher fees than someone just starting out. Because of this, you might consider raising your fees annually as your skill level and experience grows.
  5. Check your competitors. Are there people out there, with your same skill level, charging more than you do? Why do you think you’re still undercharging?
  6. See if your product or service is a “commodity.” A commodity is a product or service that is the same, regardless of who is offering it. If you’re selling a gallon of milk, it’s the same gallon of milk that your competitors are selling. In commodity pricing, there’s no room for differentiation in the customers’ minds, and customers will be looking for the lowest price. So if you have a class called, “Copywriting 101” and your competitor has a class called, “Introduction to Copywriting,” your customers will see these two classes as the same thing, a commodity, therefore price becomes the only differentiating factor. However, if your product or service is unique, or your skill set and experience are different and better than your competitors, then you can charge more. You’d pay more for Oprah to teach you how to create your own TV show empire than someone you’ve never heard of. Bargain basement prices often scare off potential customers because they think your product or service is a commodity they can find anywhere. Use good marketing, branding and copywriting to differentiate yourself from your competitors.
  7. Decide in advance whether you’ll raise fees across the board, or only for new customers. Even if you raise fees only for new customers, there may come a time when existing customers will need to have their rates increased, too. Make a strategic decision about when you’ll raise your fees and for whom.
  8. Do the 80/20 evaluation. Find the 20% of your customers (or customer types) who bring you the least profit and either raise their rates or get rid of them. This may sound harsh, but you’re in business to make a profit and you can’t carry an unprofitable customer just because you like them. Refer them out to someone who can serve them at the fee the customer is willing to pay.
  9. If you will be raising your fees with existing customers, it’s a good idea to call them or write a letter, explaining that the fees will be going up to the new rate, and giving them a date when this will happen. I recommend giving them at least a two month notice. Will you lose some customers who aren’t willing to pay the higher rate? Yes. But if you do, then you need to ask yourself, “Why hasn’t this customer found value in what I’m offering so that the new rate was still acceptable to them?”

This is the perfect time of year to look at your pricing model and make changes. Take a few hours and decide on your new fee structure, dates for change-over, and communication avenues.

   

16 comments for now

16 Responses to “How To Raise Your Fees”

  1. Anastacia BriceNo Gravatar

    Nice tips, Karyn! ♥

    What I find is that maaaaaaaaaaany small business owners–especially those who own service businesses–aren’t profitable to begin with, so even raising their fees doesn’t really help.

    They think, based on looking around, that $____ “sounds good,” and they reason that, if they bill that they’d *have* to “make good money.”

    None of that is necessarily the case, as I know you know!

    A

    09 Aug 2011 at 8:47 am

  2. Karyn GreenstreetNo Gravatar

    I’m not sure that every business owners knows — really knows — their customers. They don’t know what their customers want and need, and what they’re willing to pay for it. There is a limit for how high you can raise your fees before your customers say, “It’s not worth it. I’ll find another way (or I just won’t deal with this problem and hope it goes away.”

    But all too often, it’s our choice of WHICH customer segment we’re going after that defines our ultimate profit. If you go after the WalMart crowd, you can’t raise prices on them all the time. Defining your customer segments and niches is hugely critical to any business’ success.

    Of course, there’s the whole question of what offers you create, and how you market them, but I’ll leave that for another time… 🙂

    (Getting off my soap box now…LOL!)

    09 Aug 2011 at 9:28 am

  3. DonaNo Gravatar

    Hi Karyn,

    I love your article on raising fees. As a VA who has been in business for close to 5 years, it has become apparent to me that you can be billable for about 30 hours out of a 40 hour work week. So, I now have to adjust my fees again to compensate for that. If my goal was $1,000 in earnings per week I now have to earn that in 30 hours instead of 40 and my fees need to reflect that.

    I’ll be raising my rates at the first of the year. 🙂

    Dona

    09 Aug 2011 at 10:47 am

  4. Karyn GreenstreetNo Gravatar

    Dona, it’s fairly standard in the “consulting” world that you can only be billable between 50-75% of your working time (50% is what the gurus say). So you’ve brought up a good point: can anyone really be billable for 40 hours a week (unless they have a VA, of course! :))?

    09 Aug 2011 at 11:48 am

  5. johnNo Gravatar

    Hi Karyn Greenstreet

    This is resourceful and wonderful.

    Thanks
    john 🙂

    11 Aug 2011 at 8:23 am

  6. Karyn GreenstreetNo Gravatar

    Glad you found it helpful, John! 🙂

    11 Aug 2011 at 8:56 am

  7. Caroline McVitieNo Gravatar

    I have been trying to figure out how to raise my fees for several months now, Karyn. Thank you for an indepth peek at how to do it! I’m going to re-read this over the weekend and set my new prices by Monday. 🙂

    -Caroline

    11 Aug 2011 at 9:00 am

  8. Karyn GreenstreetNo Gravatar

    Caroline, I know a lot of people who put off doing this because it feels overwhelming. I’m glad this blog post is giving you some confidence that you can do it. Bravo to you!

    11 Aug 2011 at 9:09 am

  9. RonNo Gravatar

    Thanks very much for a very informative and useful article.
    Ron

    14 Aug 2012 at 8:22 am

  10. Terry WildemannNo Gravatar

    Karyn,
    This topic comes up consistently in my workshops. Thanks for a comprehensive article. Sharing!
    Terry

    26 Feb 2014 at 7:34 pm

  11. Karyn GreenstreetNo Gravatar

    You’re welcome, Terry…share away! 🙂

    27 Feb 2014 at 1:52 pm

  12. Terri L MaurerNo Gravatar

    We all grumble as we open our bills each month, noticing that they have gone up – again. None of those companies has one bit of regret at raising prices to keep up with inflation and other business costs, so why should those of us in service professions? Great list, Karyn, thanks for sharing your ideas. I’ve shared it with a number of people who need to be seriously ‘nudged’ to make a rate increase in 2014.

    01 Mar 2014 at 3:31 am

  13. Wendy Pitts ReevesNo Gravatar

    Hey Karyn –

    I see this especially with women business owners in general, and those in the healing arts in particular.

    And as one of my (many) favorite coaches is fond of reminding folks, your life’s purpose is to make the world a better place, but the purpose of your business is to make a profit.

    In my mind, there’s no reason why you can’t do both. 🙂

    04 Mar 2014 at 2:41 pm

  14. Karyn GreenstreetNo Gravatar

    Hi, Wendy,

    I think so many people are afraid to raise their fees because they might appear “greedy.” It’s not greedy to be paid what you’re worth, based on the value you give to other people. And you’re right…I see this in women and those in the healing arts, too.

    04 Mar 2014 at 6:03 pm

  15. NikkiNo Gravatar

    Thanks for the refreshing reminder of being paid what you’re worth. There was a time when I would feel so much guilt whenever I knew that I was worth a higher rate, but was fearful to tell potential clients the price.

    As women in the business world, I think we really deal with that guilt factor more than our male colleagues.

    The excellent point you made about commodities reassures the choice I’ve recently made to raise the bar on my business in general. Thank you for this perspective!

    – Also, this is my first time visiting your website… I will be spending time on your site! You seem to have a lot of great content and information 🙂

    07 Mar 2014 at 3:44 pm

  16. Karyn GreenstreetNo Gravatar

    Hi, Nikki, I’m glad you found the website. 🙂

    I was on a mastermind group call today where one of the members talked about sending a proposal to a major corporation. Right before she sent it, she went is and INCREASED the fee, then hit the SEND button. Within an hour, the client called back and said yes to the proposal.

    It reminds us to ask for what we’re worth! 🙂

    07 Mar 2014 at 4:32 pm



Category: Business Strategy & Planning, Marketing