How to Raise Your Prices or Rates without Losing Customers
by Caron_Beesley, Community Moderator
- Created: October 31, 2011, 11:43 am
- Updated: May 21, 2012, 1:33 pm
Everyone has to increase their prices eventually. If you’re fortunate your customers won’t notice. But in a budget conscious economy, the chances are they will.
If you run a contract- or consulting-based business, it can be doubly difficult to raise your rates because you’re going to have to be upfront about the changes, and in all likelihood negotiate a new contract.
So it all makes for a worrisome situation. However, done right, raising your prices should not alienate your customers – particularly if they value you and your services. Here are some tips for raising your prices without losing customers.
1. Have a Pricing Strategy
A pricing strategy is a well-thought out plan that helps you calculate the prices, rates, or fees associated with your products or services. This may be reviewed monthly, quarterly, or annually depending on market forces, wholesale prices, and other “cost-of-doing-business” expenses. This way you can make rate increases a regular part of your business instead of waiting until it’s too late.
2. Change Your Pricing Structure
Changing how you package and price your product or service is a very common way of making more money from customers without a rate hike and without ruffling feathers. Here are some ways to do this:
- Cross-sell Your Services – “Would you like fries with that?” Cross-selling is an easy way to increase sales of related services and meet your customer’s needs. For example, a spa business could tag on a range of manicure services to its menu of massage services at a packaged price.
- Tier Your Pricing – Offering multiple price points across your business is a great way to up-sell products and services without raising prices. The plan here is that the tempted consumer will opt for the higher end of the tier. For example, a coffee shop may offer the following options:
1. Cappuccino @ $1.50
2. Cappuccino with a Shot of Syrup @ $2.50
3. Cappuccino with a Shot of Syrup and Cream @ $3.50
The variations are tempting, the value is clearly advertised and the decision to spend more is ultimately in the hands of your customer. The same basic, middle, and premium tiers can also be used in among consulting businesses.
- Change How You Bill Your Time – If you are a consultant or provide any service that involves selling your time in blocks, think about switching how you package your time. Trying to increase your hourly rate can be tough, instead sell your time in different chunks at different rates:
· 2 hours @ $85 per hour
· 5 hours @ $75 per hour
· 10 hours @ $65 per hour
3. What about Consultants or Service-Based Businesses?
If you operate a service-based business or are a freelancer/consultant, consider putting a stake in the ground and raise your rates after you’ve reached a certain client threshold. Options include raising your rates each year for new customers or after every 5 or 10 new customers, depending on how many clients you have on the books.
In the case of existing customers, approach your client directly and expect to negotiate your rate hike. If you are 100% confident in the value of your services then it’s likely that your clients are too and are fully expecting this. Provide a heads up – if you plan on raising your rates in the new year, engage the client in November – this gives them enough time to review your proposed rate, negotiate, and plan accordingly.
4. What if a Customer Balks at the Price Hike?
Everyone has a reason and a right to raise their prices. But be prepared for some push-back and get ready to explain your increase. Explain your price hike in terms of the added value you bring and highlight any investments you have made in yourself (such as training) or your business that justifies the investment.
Above all, expect to negotiate and use your pricing strategy to plan for this. Don’t go in too high to start with, because an educated client will almost certainly reject your opening rate without discussion. Likewise, ask yourself how low are you willing to go? What is the ideal mid-point at which you’d be happy to accept a negotiated rate?
What Price Raising Strategies Have Worked For You? Please Leave a Comment Below.
- How to Avoid Falling into a Price War by Focusing on Value
- Balancing Profits and Customer Service: Tips for Determining Effective Pricing Policy Practices
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