How and When to do a Price Increase
Let’s talk price increases.
How and when do you do a price increase? It can feel like an impossible question when the whole economic climate is tough.
But, being able to increase the prices for your services is a really important part of having a healthy, profitable business.
Often, because it feels uncomfortable, many business owners procrastinate and put it off. We don't want to scare off our clients, particularly when we know that a lot of people are struggling right now.
So how do we do this in a way that is healthy and safe and profitable for our business?
That’s exactly what we are going to cover, right now…
When Should You Increase Your Prices?
The truth is, there is not one straightforward answer to this question. There are two different scenarios that come into play. Whether you are dealing with a a new client or an existing client, as the psychology between the two is different.
When it comes to new clients, you can increase your prices whenever the heck you want!
I promise you, that no one else is paying anywhere near the same amount of attention to your pricing as you are! In fact, your potential clients probably don't even know what your prices are yet.
That means you can increase your prices and no one is going to know. You don't even need to announce that you're doing a price increase if you don't want to, because they're not going to be able to tell.
So, for potential clients, the simplest way is just to change your prices on your website. Or, if you’re doing a sales call or sending a sales email, just put a new dollar figure in there.
You don't need to justify it, you don't need to explain it. Just do it.
When it comes to your existing clients, the process is slightly different. This is particularly true for clients who are either on a monthly retainer or who regularly purchase the same service from you.
That's where you will need to be a little bit more strategic. Because yes, they will know when you instigate a price increase. And yes, it can matter.
As a general rule of thumb, I don't recommend increasing your prices for existing or repeating customers more than once every six months. That's the maximum you can do it and even then, don't increase it every six months. If you do, you run the risk of annoying your clients and potentially turning them away.
A more standard frequency of price increases is every 12 to 18 months. In fact, that's the recommended frequency.
If you haven't increased your prices for two years or more, you probably aren't delivering your service profitably any more. Even your clients could be thinking “We've been paying the same amount for like five years now"
So, if you implement a price increase, they won't be surprised.
The Challenge Of Waiting Too Long
One of the challenges of not increasing your prices regularly is deciding how much to increase them by when you finally do get around to it.
Do you ramp the price up a lot to get the service back to being profitable? This could be hard for your clients to absorb all in one go.
Or, do you only increase the price by a small amount so it doesn’t shock them?
The issue with the latter option is that the service is still not profitable for you to deliver and you have to wait another 12 months before you can make another adjustment.
Instead regularly increasing your pricing every 12 to 18 months for existing clients is actually much easier for everybody because it forms a pattern of expectation. Clients can predict and plan for it then.
Signs It’s Time To Increase Your Prices
If you are already thinking about increasing your prices then you are already aware you're undercharging for what you do. So, that in itself is a major sign that it is time to boost your rates.
The other sign is if you’re starting to feel resentful towards your clients for how little you're earning compared to the amount of effort and energy you are putting in, plus the impact you have on your client's businesses.
Resentment is a clear sign it’s past time to increase your prices.
How Much Should You Increase Your Prices?
Alright, so now you know you need to increase your prices. But, how much should you increase them by? Should you base it on inflation? Or some other figure?
While it is tempting to take the inflation figure as your cue, as a general rule of thumb, your costs and everything that's gone into running your business will have increased beyond inflation.
So, simply adding $100 to a service or a couple of dollars to your hourly rate, is not going to be enough to get your services to a profitable point for the next 12 months.
And because there's a limit to how often you can change your prices, particularly for existing clients, it's really important that you get your price change right when you first do it. That means actually doing the math to work out what you need to be charging for your services to be profitable.
You need to know how much it costs to run your business and how long it takes to deliver a service to be able to set an accurate price.
If you aren’t sure what your business costs are, that is the first thing you need to establish (check this article out for how to do that)
Once you understand your costs, you can make sure your charge out rate is set to cover your costs, what you want to pay yourself, and a bit of wiggle room.
Ready To Increase Your Prices?
Good for you! Get the pricing on your website and in your sales scripts updated now! That will take care of any new clients who want to work with you.
Now, what about those existing clients? You might be feeling a little tongue tied about how to communicate your price increases to them.
Because you ARE worth it.