True Story:
My client was Happy! They gave me 5 stars even.
Too much business Vlad!!! We gotta stop the marketing campaign!
Me: Why not raise your rates?
Client: We’re good, my families happy, we only have 2 slots open.
Me in my head: If you raise your rates by 10% you can do 15% less work and make the same. You can then become premium…or you can just stop here and you’ll never know what’ll happen…
Client: “We’re good thanks”.
Me: SUPER SAD.
My situation…
I’m facing the same problem right now.
Right now I’m trying to figure out how much more we should raise prices since I already did! We’ve went from $150, to 195, to 197, I just realized white label vendors of ours is billing our time at $210 plus an hour.
This makes me wonder…should I raise the prices again?
On the flip side I know I’m losing deals…yes! We’re passing up on clients because we’re not decreasing our prices enough and they can’t afford our services.
A simple overlooked fact…
INFLATION!
This is my third story called inflation or “a simple overlooked fact”.
I was speaking to an acupuncturist who was proud to have been doing her service for 20 years (hats off to her).
The problem is like most therapists/providers she didn’t understand the math of her business and inflation.
I asked “Why don’t you raise rates?”
She said “I did by $50, 10 years ago” proudly.
I said ok, 20 years ago how much did you charge?
She said “$125 an hour! :-)”
I said…ok…your rate today is $175 an hour…You should be actually charging $248 an hour!
You have more experience and better skills yet at 175 today you’re actually making less then when you first started!
Why? Because in 20 years the inflation rate goes from $125 to $198 an hour. So you gotta add that $50 to 198.
Well dear reader this is why…because
Besides keeping track of inflation, what is the answer?
Create A Quarterly Pricing Committee
This is the simplest and most effective solution I can think of for pricing.
Price is a serious thing in a business.
Raising prices on old customers can be super painful, how should you handle that? (Every business is different).
Decreasing prices can run a risk in your company killing margins and making it near impossible to grow.
What’s the price vs. the industry?
How should you do the price roll out?
Why should you do the price roll out?
Your pricing committee should be able to help you answer all your pricing questions.
What Should The Agenda Be For Your Pricing Committee?
Here’s an intro agenda I put together:
- What’s the goal? The number 1 goal is to understand what moves your business and margin forward. If your margin isn’t growing then there’s a potential risk that you’re not. Either you’re the most expensive premium player in your category, or the least expensive. All the companies I’ve seen succeed haven’t crushed it being a middle tier.
- What’s your pricing strategy been to date and why?
- How does your company look like operating at different price points? – Which direction makes the most senes?
- How can you position yourself to make 1 million per hire in the company? What kind of business model would allow for that pricing?
- What market segments fall in line with which prices? What is the most profitable segment? At the same time which segment gets the most lifetime value? Sometimes pricing is not just about profit, but also referrals and business expansion.
- What kind of feedback or new updates have sales people or partners heard from customers about pricing and should we cater to those market segments? If yes how?
The agenda above is what I’ll discuss with my committee in our first meeting.
I anticipate after the first meeting we can then write what we could’ve done better and update future meetings.
At the end of the day though I hope that the team you work with understands that at different levels and with different strategies pricing plays a key part.
