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:
- 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.”
- 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.
- 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.
- 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.
- 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?
- 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.
- 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.
- 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.
- 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.