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Do You Need to Raise Your Prices ASAP?

4-minute read

Raising your prices may make you uncomfortable, but it’s essential to keep your business running, like this cafe owner.
Emily Thompson

Emily Thompson

16 January 2020

It was 1 am and I was still up working. I just couldn't keep up.

News flash: This isn't a good problem to have. Sure, I wanted the work, but at what cost? It wasn't worth my health and happiness.

Then I had a major realization. I wasn't charging enough for my writing services. I had a ton of low-paying clients, and the workload was overwhelming. So I decided to raise my prices and take on fewer, higher-paying clients.

5 Signs It’s Time to Raise Your Small Business’s Prices

If you're feeling the burn too, you could be in a similar position. But it's not the only reason to raise your prices. Here are some other signs a price hike is in your future.

Sign #1 – You’re buried under work.

As business owners, we expect to work a lot. But if you’re constantly scrambling, it could be a sign your prices are too low. Think about scaling your business. Get more efficient and then start choosing the clients and customers you want to serve.

Here are a few red flags you might have too much work on your hands:

  • You aren’t getting enough sleep.
  • You struggle with productivity during your workday.
  • You’re stressed, and as a result, your relationships are suffering.
  • Your body is aching and hurting, especially if you’re in a physical job.
  • You’re constantly putting in overtime (more than 40 hours per week).
  • You’re turning to alcohol or drugs at the end of the day.
  • You’ve gotten injured or sick at work because you’re fatigued.

Remember, it is possible to grow your business and enjoy a better work-life balance. Consider increasing your prices for people who are willing to pay. Then hone in on serving those customers.

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Sign #2 – Your pricing discussion is “too easy.”

If you’ve never lost a client after talking rates, ask yourself, is this a good thing? Your low rates might be attracting eager clients hoping to get an unreasonable bang for their buck.

As a freelance writer, it’s taken me years to figure out rates—nearly 10 years. Here’s what I did:

  • Step 1: I calculated all of my overhead expenses (rent, utilities, marketing costs, website maintenance, taxes, and business insurance).
  • Step 2: I estimated the number of hours I wanted to work each year. Then I left myself enough time for vacations and sick days.
  • Step 3: I set an hourly rate that covered my overhead expenses and provided a reasonable work-life balance. I’m not jetting off to Hawaii every month, but I am earning a good living and able to pay bills.
  • Step 4: I checked in with other freelancers to make sure my rates were reasonable.
  • Step 5: I tested my hourly rate in the market. Some clients declined, some negotiated, and others were willing to pay. I honed in on clients who were willing to negotiate or pay—and I’m still doing this.
  • Step 6: Each year I re-evaluate the market and consider a price adjustment.

But what if you sell a product, rather than a service? If you’re struggling to keep your inventory on the shelf, then your prices might be too low too. Try these techniques:

  • Study your industry. Know your competitors’ pricing strategies. Learn what works.
  • Experiment. Try increasing your prices on popular products and then make changes, if needed.
  • Aim for long-term growth. Calculate what you need to earn to cover your overhead expenses. Factor in high and low seasons, and think long-term.

Remember, pricing your product correctly is one of the keys to your business’s success.

Sign #3 - You’re not reaching your ideal client.

You probably have a dream client in mind. Maybe you’re a beautician who wants to get into the bridal industry. Or you’re a handyman who’s ready for bigger projects.

If you’re not reaching your ideal client, it’s time to reconsider your prices—and your marketing. Higher-end clients usually want to spend more because they expect superior quality. According to an article in Psychology Today, in the late 1990s, P&G introduced a new product, Olay Total Effects. They found that higher-end consumers who shopped in department stores actually desired a higher price - otherwise they didn’t deem the product credible.

Try a higher price point, adjust your marketing, and then offer outstanding customer service to back it up. Try a higher price point, adjust your marketing, and then offer the customer service to back it up.

Sign #4 - You’re cutting corners.

How’s the quality of your work? If you’re feeling rushed, your prices might be too low. Ask yourself—how much time do you need to produce a great product that you’re proud of?

Take note if you’re:

  • Making mistakes.
  • Delivering work you don’t feel good about.
  • Unable to offer great customer service.
  • Producing a lower-quality product.

If you increase your prices, you can increase your bandwidth by hiring more staff or cutting lower-paying clients.

Sign #5 - Your prices are stagnant (for longer than a year).

When was the last time you raised your prices? If it was more than a year ago, it’s time to reevaluate. Every year, the cost of my software, accountant, and website hosting environment increases. Depending on your industry, expenses can increase a great deal year after year.

Keep track of your budget and adjust your prices accordingly. When it’s time to tell your customers about your price hike:

  • Remind them of your value.
  • Explain why you need to make changes.
  • Tell them ahead of time.
  • Be flexible and gracious.

Don’t stop there. Set a schedule to review pricing in the future. Put a meeting on the calendar every quarter or year and then stick to it.

If These 5 signs hit home, it’s time to act now.

Remember, your business is valuable to people. If you do your research and test prices in the market, you won’t lose the right clients. Sure, a couple of customers might leave—but that’s a good thing. Scaling your business is all about putting the smart processes, products, and prices in place so you can grow at the right pace.

Emily Thompson

Written by

Emily Thompson

I earned a B.A. in Journalism from the University of Wisconsin at Madison (go Bucky). After realizing my first job might involve carrying a police scanner at 2 am in pursuit of “newsworthy” crimes, I decided I was better suited for freelance blogging and marketing writing. Since 2010, I’ve owned my freelance writing business, EST Creative. When I’m not penning, doodling ideas, or chatting with clients, you’ll find me hiking with my husband, baby boy, and 2 mischievous mutts.

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