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Raising Fees

If the #1 fear of business owners is speaking in public, then #2 has to be the fear of raising prices. People envision higher prices like a thundercloud, ready to unleash sound and fury from customers and bolts of lightning that strike at their own financial viability.

In truth, prices go up all the time around us without triggering shrill complaints of massive defections. The best way to raise prices is simply to raise them, without apology and with little or no explanation.

Explanations risk getting you in trouble with customers, giving them an opening to evaluate and judge the reasons you offer. For instance, my accountant, whom I very much liked on a personal level, lost me when her annual client letter announced that she’d be restructuring and raising her fees because she had lost quite a bit of money in her business the previous year.

You should have heard my sigh of exasperation as I read on in the letter. My husband and I would be paying 45% more to subsidize her yearning (as I saw it) to transition from being a home-based business to being a more traditional one. She had bought an office building the year before and hired several staff members, steeply driving up her expenses. However, none of this had to do with serving customers better. It had to do with indulging her ego, living out a dream she had.

Worse, the accountant was trying to position herself as a business advice-giver as well as a tax preparer while she herself was confessing (as I saw it) extremely poor business judgment. The objective evidence for that was her massive loss. Unquestionably, she had planned badly. In addition, she didn’t seem to understand the difference between her personal goals and business decisions.

Would a different explanation have kept me on board? Perhaps. If she’d talked about new government regulations that required everyone like her to do 45% more work on tax returns, that would have seen inescapable to me. However, that wasn't the situation. Would clients who hadn’t had the personal conversations I’d had with her be more likely to accept the reasoning in her letter? I doubt it. After all, what is the benefit to the client of her having an office separate from her home and hiring more people (way younger and much less qualified) to help her? Zero. Zilch.

We all tend to be so wrapped up in our own point of view that we can’t hear how we come across to others. That’s why giving an explanation that seems perfectly reasonable to us can get others rolling their eyes.

Don’t customers deserve to know when prices are going up, though - and why? If you want to raise fees in a way that shows consideration for customers, use one or more of the following three methods. As I explained above, I don’t believe you owe clients any “why.”

  1. Raise fees sharply for new customers. “Grandfather” in your existing clients and raise their fees gradually.
  2. Give everyone advance notice of when fees will be going up for everyone. One to six months is considerate, giving people time to shop around for a new provider if they don't like your price rise and to crowd in purchases at the old rate.
  3. At the same time you announce an upcoming price hike, offer a lock-in privilege. That is, if someone pays ahead, they get the old rate for the new time period.

And here’s a rule of thumb to use for when it’s time to raise your rates. How busy are you? If you’re in constant demand - so much demand that you’re either working your tail off or turning away projects - you should definitely ratchet up your fee. Raise it 10% to 20%. If you’re still insanely busy, boost your rates again.

The higher rate serves as a self-regulating mechanism. Some clients may balk and look elsewhere. Let them go. Most will accept a new rate without objection. After all, most things in our lives go up in price from time to time.

I have actually never heard of anyone landing in financial trouble after following this guideline. Even if you lose a client or two, you wind up making the same or more with less energy output than before.

Let me add here that you do not owe any client or customer a detailed explanation of why you set your prices as you do. Unless government regulations apply, no one has a right to know your overhead, how long it takes you to perform a service for which you charge a set price, your profit margin, or markups. Like the guy at the post office who made me laugh, simply reply, “That’s the price.”

In the next lesson, discover what the relationship is between experience and what people charge.

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Written by

Marcia Yudkin