One of the hardest things for a new business owner to learn is how to set or change their rates. It can be nerve-wracking to ask for more money from a client. Cash flow is integral to your business, and you don’t want to endanger that. Increasing your rates is a fundamental business decision that may not have an easy answer, but there are ways to know how and when you should.
The following five tips can help you get in the right mindset to make the necessary changes to improve your business.
1) Believe that you are worth it
For a new business owner, the danger is charging too little, much more than charging too much. You may very well be your worst enemy. Even when you know that you’ll have to raise prices to keep your doors open, doubts can creep in and paralyse you.
Do thoughts like these run through your head when you think about raising rates?
“All my clients will leave if I raise my prices.”
“I’ll never attract new customers with this new rate.”
“I’m not worth higher fees.”
Most businesses don’t control a single niche. You need to believe that you’re just as capable as your competitors are and that you can command the same rates. If customers and clients leave, so be it. It could very well be that they were just looking for someone cheap and that’s never a basis for a long-term working relationship.
2) Consider Your Break-Even Point
There’s also the economic side. Sometimes a good dose of mathematical reality can push people into raising their rates. Analyse how much it costs to keep your business running. If you haven’t made this calculation yet, drop everything else and spend a couple of hours doing it. If you’re working hard and getting business but you’re not hitting your break-even mark, it’s time to raise rates.
The bottom line is this: you can’t run a business at a loss. You have to make enough money to keep the doors open. If your customers don’t like it, that’s not a reflection on you. It’s a reflection of their ignorance of your market’s reality.
3) Consider the Market and Your Competition
Of course, no business sets out with the goal of just breaking even. Even a non-profit needs some cash reserves. Now that you know your minimum, how much will the market bear? What are your competitors charging these days? If other businesses or freelancers with similar talents and level of experience to you are charging more, you should feel entirely justified in raising your rates. If you compete solely on price, you’ll only draw cheap customers.
Another upside is raising your rates relevant to the market may also attract more quality customers to you. If a client with knowledge of your industry sees that you’re significantly undercharging, they could take that as a sign of inexperience.
4) Analyse your Experience and Skillset
Many freelancers and businesses charge lower fees at the start. They do this for several reasons like jumpstarting a client list or building a portfolio. As long as the initial rate is still enough to keep your doors open, this may be a necessary evil. But it does put you in a position of having to raise your rates sooner rather than later. You should charge a rate commensurate with your skills and experience. It’s that simple.
5) Choose the Right Time to Raise Rates
Once you’ve decided to raise your rates and have the data to prove it, it’s time to find the right time to inform your clients. Here are a few things to consider:
Give advance warning
It’s courteous to provide a bit of warning that your customer’s prices will be going up. It’s always best to give your current clients a couple of months’ notice about any change in price or rates.
Proven your worth ahead of time
Afraid of losing customers with your fee increase? An excellent way to keep them coming back—and paying more—is to up your value to them by really over-delivering in the months/weeks before even announcing the increase. You want your clients to feel like they’d lose something valuable without you.
Consider their time with you
You don’t want to raise rates on a new client, nor do you want to raise prices too often. Try not to raise rates on customers you’ve had for less than six months. And when you implement a fee increase, make them high enough, so you won’t have to raise them again for another year or two.
Beyond this, just be honest, firm, and professional about your rate hike. You can learn a lot about your clients about how they react toward you when you ask for a raise. You might discover that your favourite client wasn’t interested in your quality, but in how cheap you were. That’s not necessarily the kind of customer you want to have.
Charging more for your time or service is not an easy subject to raise, but it is a necessary part of doing business. With these five tips in mind, you’ll be able to make responsible decisions regarding your rates, and you’ll have reasonable and convincing reasons to give your clients when it’s time to bring the subject up.
Melissa Penn writes for First Class Capital, one of Australia’s most progressive lenders and supporters of small business. She is driven to provide practical, educational information to help small businesses succeed. Find out more at https://www.firstclasscapital.com.au/