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Q: My numbers don’t add up. I have to raise my rates, but I’m terrified to do it in a down economy. It feels like businesses are slashing—not increasing—prices. Can I raise my fees without losing business?
A: Short answer? Yes. If you’re good at what you do and deliver more than you promise, you should have confidence in your prices no matter what the economy looks like. I don’t see Apple or Tiffany & Co. slashing prices. Do you? Even Target isn’t on a massive cost-cutting spree. I asked several veteran business owners who have recently raised their rates to share how they did it.
1. Before you raise rates, try a wee bit harder. There’s a reason Avis Rent A Car keeps its slogan “We Try Harder.” Follow Avis’s lead. Find ways to add value for existing clients, which you can do without burning out, says Lena West, founder of Influence Expansion , a social media training company for women business owners.
“It might be that you stay open an hour later than other companies in your industry or open an hour earlier,” West says. “If you’re a coach or consultant, offer first-come, first-served open office hours twice a month, where clients can call and ask questions without a fee. The key is value. If you are providing enough value, your current clients won’t be looking anyplace else but to you because you are their trusted adviser. Additionally, if you’re offering enough value to new prospects, they will think, ‘If this is the value you provide before I become a client, I can only imagine the value I get as a paid client.’ ”
2. Price with confidence and don’t assume blowback. When the cost of metals rose worldwide, along with her manufacturing fees for her necklaces, jewelry designer Amelia Lock did the only thing that made sense to her: She raised retail prices by $10. “Customers didn’t blink. No one even asked on the retail side. A few wholesale customers did ask, and when I explained it was due to our increased costs, all was understood.” Lock says that, from the outset, it’s essential to price new products properly—including a healthy profit margin—to avoid an increase for as long as possible.
3. Grandfather in current clients and raise fees incrementally and strategically. Early on, Lanae Paaverud, who helps clients improve their businesses via social networking, kept her prices very low. At that point, the concept of a social media concierge was new. After I featured her in a 2010 segment on Good Morning America and encouraged her on-air to raise her rates, she heeded my advice. Original clients could lock in their rates by signing on long-term or by accepting a small increase for month-to-month service, while new clients were quoted rates that were 50 percent higher. No one balked, and her business grew.
Hollywood party planner Marley Majcher says “raising” your pricing structure can spook clients and recommends “changing” it instead. “Don’t just say, ‘Oh, by the way, I was charging you $60 an hour and now I’m bumping it up to $80,’ ” she says. “Instead, mix up your formula by quoting a project fee. Or if you need an hourly rate, consider keeping it the same, but add a setup fee when you first start working with a new client. You can extend your current pricing to an existing customer; just explain that going forward you’ll now be charging a new rate.”
Majcher also suggests test-driving any price increase informally: “Practice in front of your spouse or a friend who can play tough critic until you have the whole thing down.” If you can justify your pricing confidently, people are much more likely to accept the new plan.