How to Set and Adjust Your Prices
September is the month I plan I look at costs and my client packages. Last newsletter we covered how and what to consider in a cost analysis. This time let’s talk using that information to set our next years rates. I’m going to say it. No one likes rate increases – business owners and/or clients. There’s not an easy way to do this. We can only hope that our clients understand that costs are rising for all of us, and we cannot stay in business if we don’t adjust. After all, I’m having to adjust to the rising cost of groceries and even the rising cost of going out to dinner. My business and yours are being affected by inflation as much as the food industry.
Now that we’ve done the analysis on costs it’s time to direct ourselves to how much we are charging. Whether you are a business that provides goods or services, we all must look at what we are charging for our “product” and ensure it’s covering our cost and providing a reasonable profit.
As a service-based business that offers packages to our clients, I need to analysis whether they are still in the correct package. Has there been scope “creep”? In other words, are we doing more than last years package? For me that would mean things like comparing transaction count, number of accounts we are reconciling, have they added to their payroll role making it more time consuming to reconcile? Did they add a 3rd party software that we now have to ensure made the correct entries into QuickBooks? I then look at hours my team is working on the project.
Is this client paying my current package rate or are we incrementally bring them to the current rate? What would they pay if they were a brand-new client? If it’s a long-term client, what is a fair increase in rate that covers my costs and yet rewards them for being a long-term client. The balance can sometimes feel like walking a tight rope, but it must be done.
If we do not go through this exercise, we may find ourselves in situations that we can no longer afford to do a client, nor does it feel right to increase their rate to where we are breaking even.
I can say this because I’ve made this mistake in the past. I didn’t want to talk to my clients about this hard subject. Then I was faced with having to let go of a great client because I didn’t take the time to do the analysis. It was a hard lesson to learn. I hope that my transparency into this heavy subject will keep you from making the same mistake.
Give your clients some time to digest the increase. For me, I give notice in November and the increase generally becomes effective in January. This gives the client time to adjust their own budgets. It also gives us an opportunity to remind our clients of the value we bring to them.