Editor’s note: last week we explored “when is it the right time to raise your rates?”. This week, Evan continues the discussion with tangible tips on how to raise your rates without losing clients
Recently the owner of a successful design firm approached me for help raising their rates. They hadn’t raised rates in years, and she knew their fees were quite low compared to many of their competitors. But she was very nervous. She couldn’t afford to alienate her existing clients, and she was wary of scaring away new prospects.
I find that the design firm’s situation is quite common. Most successful freelancers and small businesses face this challenge at some point. The good news is it’s one that I’ve seen so many businesses overcome. Here are five ways to raise prices successfully:
1. Focus on Increasing Profitability, not the Number of Clients
It’s impossible to raise your rates and guarantee that you won’t lose clients. (For that matter, it’s impossible to keep your rates steady and guarantee that you won’t lose clients.) Raising your prices is a strategic decision that is likely to make your company much more profitable in the long run.
Raising prices has a beautiful effect on profitability. Every dollar of price increase is a full dollar of extra profit—there’s no extra expenses, no extra work for you. This price-raise dollar is therefore much more valuable than a dollar from selling an additional project, because THAT dollar brings with it additional work and expense.
The short term profit boost can be incredible. When your fees are higher, you need fewer projects to earn the same revenue. And you make the same revenue while doing less work. So most businesses come out ahead immediately.
2. Test the Market
Often companies can’t decide what their new price should be. “If we go to $X, is that TOO high? Are we crazy?” And then, on the other hand, “But why go through the pain of raising prices if we’re only going up by a little?”
The truth is, unless you’re in a totally commoditized business like selling number two pencils, there’s no way to predict how customers will respond. The only way to know is to try it. I advise my clients to make a jump, and then see how it goes. If it goes well, wait 6 months or a year and then you can raise pricing again. Worst case, you can go back to your old rates. (Just be sure to give the new price a fair chance. Avoid the inevitable temptation to go back when one prospective client says no.)
3. Phase in Current Clients over Time
Start testing your new price in the proposals to new clients, and hold off raising rates for your existing clients. This allows you to get feedback on the new prices, before rocking the boat with your current revenue streams.
When it comes time to raise pricing for existing clients, I find it’s effective to let them know 1-2 months in advance. For example, tell them in early April that the new rates will start on June 1. Another great trick: encourage them to book any additional work now, so they can lock in the old rates. This will give you a nice little spike in business.
4. Emphasize the Value and Don’t Apologize
It may be uncomfortable to present your new rates to clients, and it’s essential that you resist any temptation to apologize. Apologies undermine the tremendous value of the service you provide, and suggest to the customer that there is a problem.
Instead, highlight to your clients the incredible results you get them (just as you would in any sales pitch). With new clients, there should be no reason for them to doubt your rates, unless you suggest there is. Present your rates acting as if you’ve always charged this much. For existing clients, it’s usually effective to explain that you are increasing prices “to reflect the increase in results our clients are achieving, as our experience grows.” Or something to that effect (assuming it’s a true statement!).
Related: Creatives, don’t undersell yourself
5. Expand the Scope of your Sale
Another great way to increase prices is to start selling bigger packages or projects than you normally do. This sort of bundling allows you to increase your profit margin. Think about how you could sell a “deluxe” version of your service, or how you could “supersize” it.
For example, I worked with a web design company who required clients to provide their own copy for the web pages. They created a deluxe package which bundled copywriting services. They subcontracted the copywriting to a partner, and charged clients a marked-up rate to cover the management time.
My clients consistently find they are able to sell much bigger projects than they believed possible. If you’re interested, I wrote an article on how to build the deluxe package and land the sale.
Share Your Thoughts
After reading this, what will you do to raise your rates? What tactics have you found effective in the past? Share your ideas and feedback by posting a comment below.
About the Author Evan Horowitz writes at EHAdvising.com for successful entrepreneurs who are tired of “winging it” on the business side of things. He brings his Harvard MBA and hundred-million dollar management experience to show you how to grow your business much faster, and with less stress. To get simple tips to become a smarter CEO, join his free monthly Bite Sized Business Tips newsletter.