Setting your prices is challenging enough as a new business and it might be enough to stop you raising your prices for a long time. I don’t blame you. I was scared to raise my prices for ages… I didn’t know if my services were worth more, I didn’t want to lose all my current clients and I didn’t want to put off new ones.
It can be hard to know your worth, especially if you’re only looking at competitors to gauge pricing. Sure, they can be a good starting point but you don’t know their overheads and costs. You don’t know exactly what level of service or quality they offer. You won’t always know when they last increased their prices and whether they too fear raising them.
Especially when you’re a freelancer or sole trader, when so often YOU are your business and your prices are in some way a reflection of what you think you’re worth.
So, how do you know when you’re ready to raise your prices? Here are seven signs you’ll know it’s the right time…
1. You’re fully booked
If you can’t take on any more work for the foreseeable and you’re at capacity for you (you being the operative word here, not someone else’s version of being fully booked), that’s one of the strongest signs it’s time to raise your prices. You’re clearly in demand – and supply and demand is one of the key factors for price setting.
Let your current clients know you’ll be raising your prices after ‘X point’ (on renewal, next purchase or after a certain date) and start all new customers on your new rates.
2. Your customers are incredibly happy
You need to be giving your customers incredible value in order to reduce the risk of them moving to a competitor when you raise your prices. If you’re getting 5-star reviews, strong testimonials and recommendations from 90% or more of your customers, you can be assured that you’re giving them something so great they’ll want to stay and that they see the value of what you are selling.
3. Potential customers are surprised you’re so cheap
Are you quoting for work and receiving comments like “oh, that’s less than I thought”? Or perhaps your current customers are telling you you’re “too cheap” and undervaluing yourself. If someone who is willing to pay for your products or services tells you you’re cheap (or even too cheap) then listen to them!
It’s not just that you’re undervaluing your business offering, but you could be damaging your brand. Think about the psychology. For the price-conscious, they might be delighted they can get your services or products at that price but for the customers who want to feel like they’re getting the best may think you’re cheap for a reason (i.e. you’re not as good as your pricier competitor).
4. Costs have increased
Have the materials, equipment or services you use as a business gone up in price? Maybe they’ve gone up over time due to inflation or increased market demand. You should keep a close eye on the % increase of your expenses as a business (especially during periods of economic growth) and build those increases into your prices to retain your margin.
If you’re offering a service with limited overheads you may be less aware or sensitive to these increasing costs so diarise regular check-ins to review your outgoings and prices.
5. You’re expanding
When you start employing people and expanding your operations, it’s a good time to justify a price increase. Usually, it means you’re going to be able to give better service or increase your range or offering. These are all straightforward business reasons to raise your rates.
6. You’re not making enough money
This sign comes with the caveat that you must be selling a product or service that people want and need, are prepared to pay money for and that you’re giving a great service to your current customers. If you’re doing all those things and not making enough money to pay yourself a fair wage, it could be a sign you need to up your prices. If you’re desperately waiting for an invoice to be paid or losing sleep about your income as a business you could find a price increase a simple and effective fix.
7. It’s been years since you last raised your prices
If you haven’t raised your prices for years, why not?! If you’re not seeing a decrease in demand or battling through recession then it’s a definite sign you can afford to increase your prices. You just need to get on and do it.
Want to know how to raise prices without ticking off your customers?
- Prepare your reasoning so you can answer any objections you get.
- Time it carefully, considering the impact of the timing on your customers.
- Add value at the same time as increasing your prices.
- Offer a bundle your products and services with a discount.
Of course, it’s not just about raising your prices. Budgeting in business is hugely important – as is cash flow forecasting – and may open up other possibilities for you to improve your cash position.
And, if your business is in financial difficulty, read our survival guide and make sure you’re getting sound financial advice and support.