In every business, you will inevitably have to raise your prices to continue making a profit. Many factors go into deciding how much you should charge. A changing market, inflation and rising cost of goods are just some reasons why small businesses must reevaluate their rates regularly to stay competitive and in business.
While it may feel like you just set your prices or recently adjusted them, this task should be done at a minimum once a year, preferably more. Read on for signs that your business is ready to charge more.
You have a loyal customer base
Being in business for a while usually means building a loyal customer base. People will likely return to you when they know they’re getting a quality product. Customers are more likely to keep coming back when they get to know you personally.
If your business has a lot of customers who choose you because you offer rock-bottom prices, raising your rates probably won’t go over well. You should wait until you’ve established a base of loyal customers who will happily pay more, knowing they’ll get amazing personal service from you.
People tend to gravitate and buy from those they like, know, and trust. Build relationships to foster that, and they’ll likely keep coming back.
It’s been a while since you raised your rates
The rate of inflation is a good enough reason to raise your prices; otherwise, you will be operating at a loss. Keep an eye on the inflation rate each year and adjust accordingly. Your customers will usually understand raising prices in times of high inflation, even if they don’t like it, since every business on earth must either keep up or accept the loss to their bottom line. It’s just good business sense.
For decades, the average inflation rate has hovered somewhere around the 3% mark, with some years being worse than others. If you’ve watched the news lately, you’ll know things in 2022 are slightly different. Take into account what’s happening, the bigger picture, and then adjust your rates accordingly to avoid absorbing the hit.
You’ve added value
More value doesn’t have to mean that you’re offering more literal services for the same price. Value can also come in the form of new skills and experience. When you and your Team Members have added value to what you’re able to offer, that should be passed along to your customers. Customers are usually always willing to pay more for a superior product or service.
Your competitors are charging more than you
Make sure you find out what your direct competitors are charging. As your business evolves and improves with time, check to ensure that you’re comparing yourself against other businesses of the same class.
If you’re not keeping up with regular rate increases, you may be surprised to find out that competitors that were initially your equals have raised their rates substantially. You will then find yourself in a position where you must increase your rates considerably in just one hit to keep up. Regularly check in on what they’re doing to keep on track.
Your close rate is over 80%
A good rule of thumb is that you want to aim for your close rate to be between 75-80%. If it’s lower than that, you probably have an issue with perceived value. If it’s higher than that, you’re likely overworked and mainly attracting bargain hunters, not a loyal customer base.
If everyone says yes to your prices, you probably aren’t charging enough.
Final Thoughts
When considering how you raise your prices, there is a lot to consider, and you don’t want too much to change too fast. Designate a time to reevaluate your rates every six months, and you’ll find that you can keep your customer base while also keeping up with the increased costs of doing business.
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