We’ve learned a lot about our businesses, and ourselves during this crisis. When it comes to crunch time, you’re a business like any other, and your prices need to reflect your value in order to stay afloat.
We’ve had lots of great conversations about re-pricing lately, and found many of you are sitting in one of two categories.
- Lockdown has given you a chance to evaluate where your business is, and you’re concerned you haven’t been charging enough historically for your offering.
- You’re having to spend longer on procedures due to restrictions on how you can operate, and you know your prices need to change to reflect that.
Some of our clients have told us ‘we’ve been thinking about putting a price increase in place for a few years’ and the pandemic has made them realise they just have to do it – because nothing is certain.
We understand that defining your value proposition can be difficult, whether we’re in a global pandemic or not. You may be ready to raise your prices for all the right reasons, but it may also feel a little bit scary thinking about repricing clients, or drawing in new customers at your new costs.
Be encouraged that you’re on the right path by asking this question. We want to give you some practical advice so you know how to go about it.
If your service has evolved and you’re spending more time, even a temporary increase could help
If you’ve pivoted your services, and you’re doing more but charging the same – you’re going to be feeling the stretch.
If you’re not feeling the effects of that disparity now, we’re worried you’re going to feel it later. Though it may feel nerve wracking implementing a price increase right now, it’s the only way you’ll be able to operate profitably after lockdown.
Our fear for clients who don’t raise their prices, is that it’ll be too late to rectify. We’ll come to do their accounts this time next year and they’ll have made a loss, or at the very least a significant reduction in profitability. We don’t want that for you.
The fact of the matter is, if you’re in this situation – you just have to do it. Even if it means raise your prices temporarily until the pandemic is over and your services return to normal.
Here’s how to go about that:
Know your value, and decide what your prices should be
Introducing a price increase to new clients feels less nerve wracking – because they don’t know any different. Unless you’re wildly out of the range of your competitors, it’s generally okay. You just need to get your head around your true value.
Part of knowing how to price means looking at the market, and part of it means looking at your cash flow to see what you earn Vs what you owe.
- Look at competitors to see what the average price is for your product/service
- Compare the products/services to see if your offering is the same, offers less or more.
Your cash flow:
- Gain insight into the inflows and outflows of your cash – we talk about the importance of cash flow management in our blog: Why Every Business Should Maintain a Cash Flow Forecast
- Look at your costs to see what you need to earn to make a profit
- Look at the amount of time it takes you to produce the product or complete the service to see what you need to earn to cover your time.
Make a plan ahead of time to phase in new pricing for existing clients
Your existing clients will need time to adjust to the increase, so give them notice by having some real conversations.
It has been our experience that people are quite understanding about the effects this pandemic is having on the economy.
We’ve seen more grace and understanding when it comes to the needs of small businesses, because businesses everywhere have struggled in one way or another – whether it be financially or operationally.
Be clear about when things will change, and how. Be human and honest about where you stand. You may find your relationships are so strong that the fear of their reaction is actually worse than the reality.
Make sure they see the value in your offering
Take the time to pick up the phone or jump on a virtual call to talk them through the reasons behind your increase. Have a real conversation with your clients and show them how much more value you’re providing them now.
Think about the possibility of adding something small to your offering to make up for the increase. Is there anything that doesn’t cost you more or take up lots more time?
If you haven’t thought about it until now, now’s the time to reassess
You might have read through this entire blog and now all you can think about is your pricing (even if you hadn’t been thinking about an increase at all). That’s okay.
You deserve to be paid what you’re worth, whether it’s products or services you’re selling.
Take the time now to reflect on how resilient your business really is – and to make sure your debts and expenses don’t outweigh your profit.
And if you don’t know how to figure out what’s coming in and out of your business, let us know. We can help you understand your cash flow better, so you can make a more informed decision about your pricing position.
You’ve got this.