Making the decision to raise your rates can be scary, especially for small businesses. We’ve all had those thoughts: “What if my clients don’t want to pay any more?” “What if I’m charging too much?” “How can I prove I’m worth the money?”
But it’s really important to revisit your pricing strategy regularly and raise your rates if needed. Also, look at your overheads, assess your financial needs and adapt your rates accordingly.
You wouldn’t expect an employee to work for years without a pay rise or promotion. So why should your rates be any different? Here are some of the most important reasons why you should raise your rates, and some of my top tips about how to do this.
Why should you raise your rates?
Many small business owners like us have something in common: We started our businesses because of a passion. But just because we enjoy the work we do doesn’t mean we should work for less money.
Here are the 3 main benefits of increasing your prices:
- Cash flow – Having a healthy cash flow is an important part of owning a business, and sometimes it’s necessary to raise our rates to achieve this.
- Grow your business – Increasing your prices is one way to “grow” your small business. How do you earn more money if you’re already maxed out on time? Simple – start charging more! If you don’t have the capacity to take on any more clients, putting your prices up will allow you to increase your earnings without having to work 15 hours a day.
- Focus & expertise – It’s also a good way to change the perception of your business and start attracting your ideal clients or customers. If your rates are low, you’re likely to attract low-paying customers. If your rates are higher, however, it will be easier to attract clients with a bigger budget. You’ll also be able to position yourself as more of an expert in your field.
Read more about why you should communicate your rates on your website.
How much should you charge?
Rather than plucking a number out of thin air, have a think about your industry, your role and your needs. There’s no point in charging more, only to discover that you haven’t raised them high enough and you’re struggling to pay your bills.
Likewise, don’t triple your rates overnight – otherwise, loyal clients might struggle to see why they’re paying you so much more for essentially the same service.
I’d recommend you take the following into consideration:
- You need to cover your business costs – work out exactly how much your small business costs to run every month. Add up things like office rent, staff costs, memberships and subscriptions, equipment costs and travel expenses. Does your current rate cover all this?
- You need to match the niche you’ve chosen for your business – think about who your target audience and main competitors are. How much are customers willing to pay, and how much is your competition charging? There’s no point charging luxury prices if your audience is budget buyers.
- You need to make the amount of money you need (or want) to earn – your business needs to be able to provide you with enough money to pay your bills, and ideally some more on top of that. The minimum you’ll need to earn is enough to cover your monthly bills (rent/mortgage, utility bills, council tax, food etc). But you’ll probably want to earn more to be able to afford things like holidays, eating out, shopping and saving for the future.
How can you raise your rates?
Once you’ve worked out how much you should be charging, actually putting it into practice is often the tricky bit. Here are some tips to make sure the transition to your new rates goes smoothly:
- Update your portfolio, website or CV – make sure all your key clients, achievements and skills are listed on your portfolio so current or potential clients can see exactly why they should hire you. Don’t forget to add in training courses you’ve done, awards you’ve received or important case studies from previous work. This will all help to prove that you’re worth the money.
- Start by charging more for new clients – when you begin working with a new client, give them your new rate. They’ll have no idea you’ve recently upped your rates, so they won’t even think twice about the new price. If they’re happy to pay that amount, it sounds like you’ve got your research (mentioned above) spot on.
- Offer a discount to current clients – rather than surprising clients with a sudden jump from £X to £Y, offer them a loyalty discount to ease them into the new rate. Let them know what your new rate is, when it will apply from, and how long their discount will last. For example, offer existing clients a 15% discount for the first two months, after which they will pay the full new rate.
- Apply the new rate – by this point, both new and old clients should be paying the new rate. If anyone is still paying the old rate, let them know that your prices will be going up from the next invoice. It may be the case that some existing clients are not willing to pay this. But this just means they’re not in the right niche for you, and you have now moved on to working with a different type of client. It may be time to amicably end your working relationship, so you then have more time to take on higher-paying clients.
WANT TO READ MORE?
To read more about this topic, have a look at these:
Should You Communicate Your Rates on Your Website?
Learn how to Deal With Price Shoppers As a Small Business
Why You Should Add Perceived Value to Your Small Business
How to Make Your Small Business Work Smarter Not Harder