How can I raise my rates when inflation is high?Sep 30, 2022
You know that you’re undercharging for your services. But you also know people and businesses everywhere are struggling. You had just gotten up the nerve to press publish on a new set of rates, but now you’re questioning if it’s the right thing to do. Here’s an approach that can help inform your decision so that it aligns with your values and also allows you to value yourself.
Inflation is rising
By now, you’ve noticed the increasing costs of everything. I filled my gas tank this morning – and what used to be a $75 fill is now over $120. Ouch. But it’s not just non-renewable resources. Have you been to the grocery store lately? Our bills have gone up by well over $500 a month, and I cook everything from scratch (for reference, that’s for my husband, myself and one adult daughter who likes to live on bread and cheese). The world is getting more expensive, and so you may be considering whether it’s time to raise your rates.
Last year, I wrote an article telling you how to assess if you should raise your prices. I want to acknowledge that it was written in the context of a “normal” year – not one where everyone is feeling the pinch. That said, it’s a great resource, because it asks you to look at your business and assess the value that you provide – regardless of the context around you. I’ll link it here, because whether you decide to raise your rates or not, it’s important to do this assessment at least once a year (more frequently if you are new to business and starting out with newbie prices) to identify what you should be charging.
Your value evolves over time
If you’re a business owner who makes money through your intellectual property or creativity, there is often no set of pricing guidelines for what you do. If you are like me, when you started out, you began by offering free or very low-cost services to gain experience, generate client feedback, and build your reputation. But pretty quickly, you had more free or low-paying clients than you could comfortably handle.
At this point, you might have raised your rates or shifted your model. You might have found ways to standardize and streamline your process. I know many photographers who book locations and do branding shoots all day long with different clients to optimize their setup time; that’s a great example of streamlining. I also know many coaches who have moved from a one-to-one model to a one-to-many approach.
This is exactly what I did. Instead of offering one-on-one negotiation coaching, I shifted to a cohort-based program where I coached 8 women at a time. They received a huge amount of value, and instead of me spending 8 hours in coaching sessions, I was only spending a few in session – giving me more freedom and flexibility in my business (ie. time and space to do other things).
Optimization can only take you so far
At first, when I made that shift, I felt really good about it. But the problem was that they were now getting even more value from the group coaching sessions (because they were learning from others), but I wasn’t getting paid much more – because I was still charging newbie rates and managing the administration associated with 8 clients at a time.
I took things one step further and digitized the content that I was repeating over and over again. I made it easier for clients to access the information, tools, and resources I had developed. This allowed me to create two Fearless Negotiation courses – one for entrepreneurs and one for women in corporate who are negotiating their salaries. With these courses, I have created a DIY model for negotiation – allowing my clients to learn the foundations of the skill and apply it over and over again.
Value is the price the customer is willing to pay
I’m embarrassed to admit how low I priced those courses when I first launched them (and no, I’m not going to tell you the price). I was so naïve. I believed that if I made them extremely affordable, everyone would buy them. In fact, I was wrong. The truth is, it wasn’t until I raised my prices that my clients started to believe the courses were worth their time.
That’s because when we invest in something – when we make a decision to not buy something else in order to afford that product or service – we don’t just invest financially. We also invest emotionally. So if buying your specialty product or service doesn’t make your client pause and ask whether they think it’s worth the value, then they’re probably not going to emotionally invest in that purchase.
Value is defined as “the price the customer is willing to pay”. It’s determined by more than just what your competitor is charging. Value is also shaped by:
- The transformation or outcome that you’re promising
- The persistence of the problem you’re solving
- The experience you’re offering
- The quality of the product
- The cost of input materials
- Market rates of similar products and services
- Your refund policy
- Your reputation and experience as a business owner
- Social proof or testimonials from previous clients
- Your confidence in demonstrating the value
Stay out of your customers’ wallets
Ultimately, you don’t determine your value – your customer does. That’s why you can’t let trends in inflation determine whether or not you raise your rates. Instead, consider your product/service through the eyes of your customer to determine if now is the right time to announce that price increase.
For example: what do your clients say about your product or service? Do you get frequent referrals from previous clients? Do you have repeat buyers? How often do clients ask for a refund or complain about your product or service?
Just because you might be feeling the pinch of inflation doesn’t mean that your client is. Stay out of their wallet – their money is theirs to spend. Your job is to determine if they’re willing to spend it in your business. For help with this step, read Raise Your Rates: Five Easy Steps for Women Entrepreneurs.
Strategies to soften the blow of a rate increase
If you decide that now is the right time to raise your rates, but you’re still feeling uncomfortable, here are five steps you can take to soften the blow for those customers to whom that increase will feel steep.
Provide advance notice
This is both good for customers and good for you. Publicizing that your rates are going up at the end of the month is a great way to spark some business from those who have been on the fence for a while. Be sure to reach out individually to those potential clients who you know have been weighing their decision for a while. The chance to buy at your current rates can be exactly the motivation they need to swipe their credit cards.
Cultivate your existing clients
You might consider offering to extend your contracts with existing at their current rate. This gets you some more guaranteed income with clients that you enjoy working with. But it also sends a signal that you value them and their business. I want to caution you here, however. It’s important that you only offer this continued rate for a limited time. For example, offer them the chance to add three months to the existing contract at the current rates. If the timeline is wide open, you may begin to resent those clients who are still operating on a discounted rate after a year.
One of the lowest risk ways to soften the blow for new clients is to strengthen your return policy or guarantee. If you’ve been doing what you do for a while now and your clients get results, then you can build that into your money-back guarantee. For example, I know that if a client gets through all of the material in my course, they are going to get at least the value of the course back within the first couple of negotiations they do. So I recently removed my “no refunds” policy and replaced it with a limited 14 day money back guarantee. I have never had a client come back to me and say that the course wasn’t worth what they paid, so this guarantee is a very low risk offer.
Sweeten the deal
Everyone loves a freebie. Guides, checklists, and quizzes are some of the most popular lead magnets out there – and if you are a service provider, you probably have a few that you rotate through. There is nothing stopping you from packing up a few of them and adding them to your offer. Be careful with this one though. When you’re offering a freebie, you need to make sure the math adds up. If you’re offering up additional time and energy (for example, if you throw in an extra coaching session), be sure to calculate the real cost of that “freebie” and assess whether it’s the best choice. If your new rate doesn’t make up at least 2x the cost of your time, then find another freebie.
Build accessibility into your business
I often hear from clients that they keep their prices low to ensure affordability. If this is you, I want you to shake your head right now. The client who drives a Lexus and has a closet of Louis Vuitton bags does not need your charity. Instead, think about creating a scholarship program for people who can’t afford your service. Consider how you might offer a pay-what-you-can or deeply discounted rate to a deserving client who can’t afford full price. In these cases, ensure there is an application so that you make the decision whether to grant the scholarship or not (and to create a waiting list for spots). You can offset these costs in a few different ways: through your own corporate giving (put aside a percentage of sales to create a scholarship fund), add a “support the scholarship fund” payment option at your checkout, or build a set amount directly into the cost of your programs and services.
Put yourself first: raising your rates is about valuing what you do
As women, we tend to worry about everyone before we consider ourselves. As a business owner, you don’t have that luxury. If you can’t pay the bills and earn a profit in your business (yes, you need to do both), then you won’t have a business. That means you won’t be able to help people with the product or service you created to fill their needs.
Raising your rates isn’t something you should take lightly. But it’s also not something you should avoid. Reviewing your value regularly and systematically is an important step to stay relevant and competitive. And raising your rates ethically is an important step to stay profitable and to fuel your growth. If you've decided that it's time, then be sure to grab my Guide to Raise Your Rates, which helps you with the words you can use to communicate those changes.