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 some 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 don’t know are 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, profit wise. No matter how tempting, you cannot make a loss on a sale. In fact, it’s not just about what you “need” to make, it should be about what you “want” to make, too.
- 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 make more 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, you’ll be able to charge higher fees than someone just starting out.
- Check your competitors. Are there people out there, with your same skill level, charging more than you do?
- 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 The Little Giant Ladder, it’s the same one that your competitors are selling. In commodity pricing, there’s not much room for differentiation, and customers will be looking for the lowest price. 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, especially if they’re buying a unique product or service. Use commodity pricing wisely and sparingly.
- Decide in advance whether you’ll raise fees across the board, or only for new customers. Even if you only raise fees for new customers, there may come a time when existing customers will need to have their rates increased, too.
- Do the 80/20 evaluation. Find the 20% of your customers who bring you the least profit and raise their rates. This may sound harsh, but you’re in business to make a profit and you can’t keep an unprofitable client (or one you don’t enjoy working with).
- 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?”