As you build your name and your client list during the early stages of your company, you may struggle with one important detail -- how much you should charge. You're so focused on creating great relationships with your customers that you fear splintering all of them by raising rates.
With budgets to meet and expanding teams to support, price hikes are inevitable. But that doesn't mean that raising rates has to be upsetting for your customers. By focusing on and keeping track of your value, you can position yourself as a solution -- one that's worth more than what you're charging right now. Providing hyper-value while charging a defendable rate is what I call the Value Equation.
Here are some surefire strategies to effectively increase your rates while maintaining the Value Equation:
Raise your rates until someone says something
The first time my company increased our prices, not a single client said anything. This made us realize a couple of things: one, we could have been charging higher rates all along; and two, we owed it to ourselves to see where the breaking point really was.
So we raised our prices a second time. Again, not a word. Because we had been providing tremendous value all along with a viable offering, and building our business through thought leadership and PR, our customers either didn't notice the increases or felt it was in line with the quality of services they were receiving.
We tried a third time, and finally we went up against a little bit of pushback. Not a ton, but enough to know exactly where the line was. It's important to take note of exactly where you're meeting resistance, too. For example, our retainer rate was always the same as our project rate, but when we increased both, we only got pushback from retainer clients. No problem; we dropped that rate and were able to incentivize more long-term contracts.
Recognize the green flags
When you start seeing patterns that indicate it's go time for a price hike, don't ignore them. One obvious sign, and one we experienced a few times in our early stages, is getting contracts signed immediately. When a company can't wait to purchase your services and even asks, "are you sure?" when they see your prices (yes, that happened), you can be fairly confident that you're at the low end.
It makes perfect sense that companies don't know exactly what to charge in the beginning. There's a bit of a crisis of confidence at the outset -- you don't know if you have all the necessary resources to give customers what they need, so you feel uneasy about charging like a major player.
When I started my business, I was comfortable still charging the same hourly rates I commanded as an independent consultant because it's what I knew, even though it was well under the value a full-service agency provides.
Collect the data that proves your value
It's impossible to go from being a low-cost, low-value leader to a high-cost, low-value leader. Blindly looking at cost and volume, like many software companies do, to determine if you're ready to raise prices is a surefire way to alienate potential customers and upset the ones you already have.
Having an ingrained customer service department providing feedback to marketing and sales is the only way to properly benchmark your customers so you can make data-supported value comparisons. You're not always going to be so lucky to have customers spell it out for you that you don't charge enough - sometimes you have to take what they're saying about your product or service as proof.
Customers will pay for something that has demonstrated value to others. Are you changing people's lives and getting one rave review after another? If you are, then don't rip yourself off. If you can show a viable business outcome as a result of your product or service then you are ahead of the vast majority of providers -- price accordingly.
Be careful about how often and how much
Most companies have annual contracts. It should be common sense, but don't lock a customer into an agreement and then change a rate in the middle -- even if you can find a legal way to do so.
Surprisingly, this happens, and so do awkward quarterly reviews that are transparent attempts at hastily gathering data in order to charge a customer more money. As a general rule, only bump a price up once a year, and even then, only when you can explain the reason of doing so.
As far as the question of how much to increase, again, it comes down to value. Most organizations aren't looking to make small incremental increases like a dollar an hour (although, in some ways, that's a brilliant strategy in its own right). In our case, our minimum jumped from $3k a month to $6,400. That's a big increase, but we had the benchmarking data that showed where our customers were before they signed on with us, and how they saw results afterwards.
When it comes to renewal time for your current customers, be confident that your new price is what you're worth. Tell them you're willing to help them out a little, but this is the going rate for the program you now sell. It's not bad behavior to believe in what you're doing.
Best advice I can give you? Always be benchmarking their happiness so you can fight for your value at any time. Paying higher prices is never easy for customers, but they'll be as happy as possible to do it if you know how to hike the right way.