Sep 23, 2022
This Podcast Is Episode Number 490, And It's About How To Raise Your Prices: Value Over Price
As prices continue to rise, you've likely noticed that your
cost of doing business has increased as well. After all, the main
point of any business is to make money, and you can't do that if
you're no longer breaking even.
It's inevitable in every industry – you must raise your prices
to continue making a profit. Many factors decide how much to
charge, all of which are dynamic. The rising cost of goods,
inflation, and a changing market are just a few reasons why any
small business has to reevaluate its rates regularly to stay
competitive (and to stay in business).
If you're overworked and overbooked, you're undercharging.
People know your worth and are fighting for your time. It's time to
increase your prices!
Although there's a lot to consider when raising your rates,
make a point to reevaluate every six months. Here are some tips on
how to increase your prices and how to tell your customers.
- Accept that you have to do it
It's a daunting task to consider raising your prices, as the
danger of losing customers will be front of mind.
But the bottom line is this: you cannot deliver quality
service if you're not charging enough. It's that simple.
If you're spinning your wheels trying to make up for the
difference, you'll lose customers anyway. You won't be able to
deliver the excellent service you're known for if you're constantly
overworked trying to find profits elsewhere.
Raising your prices is part of doing business. It doesn't make
good financial sense to swallow the cost to appease your customers.
With that in mind, know that you're doing the right thing for
yourself and your clients.
- Understand what's costing you more
At least once per year, consider what your business costs.
Check which products or services are making money and which aren't.
Then take it a step further and pinpoint the breakeven position for
each area.
You will then be able to decide how much more you need to make
to be profitable and comfortable. Evaluate all avenues – supplies,
staff wages, bills, rent and utilities, training, etc. Doing this
regularly lets you see which areas cost you more over time. Those
that cost you more will likely benefit from a price
increase.
- Decide your approach
A blanket increase would make sense if costs went up across
the board. However, if you find that only some of your services now
cost more to operate, it might be a good idea to increase only
those prices. Your customers will appreciate only the necessary
cost increases being passed on.
- Gauge the satisfaction level of your current customers
If you know that your clients are happy and believe they're
getting excellent service, they will be happy to continue paying
for that. They won't bat an eye when you inform them of your
increase.
But, if they're not currently satisfied, a price increase will
be an excellent excuse for them to leave. This isn't necessarily a
bad thing–some of the lost profits from those customers leaving
will be made up by the price increase to other customers. And
clients that aren't happy could become long-term headaches for your
company.
- Give a lot of warning
If you offer subscription programs (such as system inspections
and routine maintenance for homeowners), email your client base
three months before your planned increase to let them know your
plans. State the reasons for you're raising your prices now.
Emphasize that this change is necessary to continue delivering
the high-quality service they're used to. Giving enough notice to
your clients, so they have time to react and prepare shows you
respect them.
Send a personal message to long-time clients or ones that hold
significant accounts. This shows them that you care about their
reaction and gives you a chance to listen to their concerns.
- Keep the communication lines clear
Most clients will be OK with your price increase. Some will
likely have questions, concerns, or even complaints. Focus on
answering their questions.
This isn't a hard sell – it's a discussion. Because you've
done your research, your increase is completely justified. As you
take the time to chat with your clients, they will come to
understand this. Remember, you aren't asking their permission to
increase your prices. You're letting them know of the decision to
do so.
- Communicate your value
Don't be shy about bringing up what you've delivered in the
past. By reminding them of the great service you've provided
already, they're likely to come around.
It's a great idea to provide options if they're still
hesitant, but don't give away more than you can. For example, you
could offer to keep their prices the same but trim the services
included for that price. You can find a middle ground that works
for both of you – alleviating their cost and your workload.
Final
thoughts
Once you've researched and informed everyone, go ahead
confidently with your price increase. You'll find that you can keep
your customer base while keeping up with the increased cost of
doing business. By doing so, you'll be able to continue providing
your clients with excellent service.
If you're already in regular contact with your clients, the
conversation around rising prices will be much less awkward.
Remember, the price is how much your clients are paying for your
service, but the value has no monetary measurement; it's what the
consumer believes your services are worth, and you are worth it.
Contractors like you deserve to be wealthy because you bring value
to other people's lives.
About The Author:
Sharie DeHart, QPA is the co-founder of Business
Consulting And Accounting in Lynnwood, Washington. She is the
leading expert in managing outsourced construction bookkeeping and
accounting services companies and cash management accounting for
small construction companies across the USA. She encourages
Contractors and Construction Company Owners to stay current on
their tax obligations and offers insights on how to manage the
remaining cash flow to operate and grow their construction company
sales and profits so they can put more money in the bank. Call
1-800-361-1770 or sharie@fasteasyaccounting.com