EP # 138 - 5 Steps to Raising the Prices of Your Services Without Losing Customers

In this episode of the Diamond Effect podcast, I help you explore the intricacies of pricing strategies for service-based businesses.

I address the psychological barriers often leading to underpricing and the subsequent impact on business growth. With a focus on mindset and practical strategy tips on what to consider when first setting prices for your services and then how to raise them, this episode offers a comprehensive guide for business owners on how to raise prices effectively without alienating customers.

You'll learn a five-step process for implementing price increases - the most important being the alignment of your pricing with the value provided to your clients. That ensures that your services do not become commodities competing in a losing battle of cheapest pricing, enhances long-term customer retention, and enables you to maintain good profit margins.
Today's insights empower service entrepreneurs to enhance their business's profitability and success.

Ready to double your business without adding more work? Book your sales call with me HERE and explore in detail how it's possible for you.  https://calendly.com/maggie-s2l/discovery-call

Transcript

Maggie Perotin (00:00:01) - Your business exists because you had the idea to start it. Everything begins in our minds. That's why your business results cannot outgrow your current level of thinking. Do you want to serve more clients, make more money without working more, or burning yourself out? Grow yourself first as a leader of your business because that's who you are as a leader. Even if you're the only person in your business right now, when you lead yourself first, the business results will always follow. My name is Maggie Barton. I'm an international business and leadership coach, an expert in business mindset, strategy and high performance. I created the Diamond Effect podcast to help you elevate your thinking, expand your perspective, and through it, grow your business without overwhelm. So let's get started. Hello everybody. Welcome to Diamond Effect Podcast episode 138. Today I want to talk about raising prices of your services. I have been coaching a couple of my clients on it this year, because they are getting at the point in their business where their demand is very high and they're ready with their expertise and demand and how they're going to raise their prices.

Maggie Perotin (00:01:26) - And I thought that that would be a good podcast episode, because whether you're in the beginning or even more established, pricing can create a lot of drama. And what I don't want you to do is underprice yourself. That's one, and we'll talk about it. Why? But also I want you to be able to learn how to establish firm pricing and also how to raise it and when when it's the good moment and how to do it without losing customers. If you are a new to business or a new service provider, is your tendencies, were probably to underprice yourself, right? We're so scared to price fairly, and we think that people only buy based on the pricing, that usually new entrepreneurs don't want to deter clients and they will say yes to any clients and that tendencies are to underprice. But if you've done it and you're more experienced, you'll learn that lesson. First of all, that doesn't work because then you attract the clients who just look at the price. And those are usually the most difficult clients to work with.

Maggie Perotin (00:02:35) - You also can feel resentful for the fact that you're working hard because it usually, you know, takes a lot of work, right, to provide service to your clients, and you're not being compensated fairly. So you get to learn that lesson fairly fast, hopefully. But it doesn't mean that it's easier to then raise the prices or figure out what's the right price to charge. In my journey as a coach, I have raised the prices maybe a couple times. Not that much because even in the beginning, even when my prices were cheaper, I wasn't underpricing myself. I had that idea of what coaches consultant charge. I also had an idea what I was making as a corporate leader, and I definitely didn't want to make less per hour than that. So all of that, plus the clients that I wanted to attract and certain my education, my experience, helped me establish the prices that I thought were fair for me and therefore also attracted, you know, clients I wanted. So I haven't raised my prices that much over the past four years.

Maggie Perotin (00:03:44) - It happened maybe a couple times, but the current pricing that I have, I haven't changed it in two years. So I guess whatever changes in pricing I had were in the first couple of years in my business. Before we start talking about how to raise prices without losing customers, I want to talk through five considerations to make when you actually set a price. So whether it's your first price ever or whether it's okay, I'm raising, but what do I raise it to? We'll talk about that. And then I walk you through a five step process. How to raise without alienating your current customers or or pricing yourself out of the market you're currently in. Because one consideration you want to make, price also determines the market you're in. Just like cars, right? Chrysler type of cars, or for a different market, different type of customer than Porsche or Lamborghini type of cars, right. Even though it's kind of the same product at the high level, it's a card that takes you from point A to point B, but then the quality of that car and the features and the marketing and the branding and all those things target different ideal clients for those companies.

Maggie Perotin (00:04:56) - So the two first key considerations we're setting your prices are your cost. So what does it cost me to run my business and to deliver my service let's say per hour we have caused other fixed costs. So for example, your lease or your insurance or things that are always there and you pay them monthly or yearly. If I was to break it down into hourly, how much would that be? And also we have variable costs. So causes that vary depending on the service you provide, the amount of service you provide and so on. So it could be materials that you use to deliver the service. So if you're a contractor, the materials for the job or if you are a massage therapist may be the amount of body balm that you use on the client or the sheets and washing those sheets and whatever that is. Right. So those are kind of costs that are outside of what you pay yourself. But those costs have to be taken into consideration when pricing. Of course, the. Laws that are specific to the job.

Maggie Perotin (00:06:02) - Usually I don't see people miss them. Majority of business owners know that, right? Hey, if I have to buy certain material for that project, I'm going to charge the customer the client for the material. But what gets missed? Sometimes it's the fixed cost causes that are not directly related to the job, but still you need to recover them somehow. So the second type of cost is of course what you pay yourself, because as a service provider you are delivering the service. It's easier to think about it when you're hiring somebody to deliver the service. So let's say you're not doing the photography, but somebody else for you on your behalf. Then you get to pay them. So it's easy to think about it as a cost. But sometimes we forget that if you are the one delivering the service, you got to pay yourself as if you were hiring somebody else to do it. So that price for your services needs to include that right. The pay for yourself. Then the third consideration is your profit margin.

Maggie Perotin (00:07:02) - So it's the money that is left that you make per hour and not you as a service provider, your business after the costs are covered, right? So after I cover for fixed costs and variable cost materials and pay myself, I still need some profit to be left. Because what that profit does is allows you to invest in your business, allows you to grow it, whether it's marketing, your personal growth, taxes, even to corporate taxes. Because if you pay yourself, then you pay taxes on the personal revenue. But as a company, if you're incorporated, you need to pay corporate taxes. So corporate taxes, right. You need some money left in your business. Otherwise you will never have enough resources to keep growing. Then the fourth consideration for your pricing is your positioning. Your branding in the market. And that truly comes down to who do I want to attract as a client. So as I give the example in the beginning, am I a Chevy or am I a Porsche? Am I a Walmart or am I Tiffany's? Right? You want to think about that? Because if I want to be a Tiffany's or a Porsche and I price my offers to low, there will be a disconnect that your clients will see and they're not going to buy.

Maggie Perotin (00:08:26) - They will think that there is something wrong, right? If you go to Tiffany's reports, you don't expect to spend $20,000 on a Porsche and you expect to spend hundreds of thousand. So if you went to a store and there was a Porsche for $20,000, you'd be like, what's wrong with the car? I don't want it. It's probably not good. So you need to make sure that your pricing fits the market. You want to attract and positions your business well in that market. Now, the last consideration, but it's not the least is hugely important. One of the most important ones is the value of what you offer, the short term value for your client and the long term value for your client. Because ultimately our clients buy from us, give us money in exchange for the value that they get from our services. If the value is higher than the price you charge, the client will buy no matter what that price is. If the value for them is lower in their perception or how they see it, they're never going to buy, right? So you need to understand what that value is.

Maggie Perotin (00:09:35) - So then you can communicate it in marketing and sales, but you also need to deliver it. So I will give you a couple of examples just to ground it. I have a client who builds sort of tools for her clients in Excel, and she's like an Excel wizard. I think we actually had an podcast interview at some point. Her name is Stephanie, and she also builds tools out of Excel, so she automates a lot of stuff. So let's say if you're a contractor and you were quoting on paper and it takes you four hours to create a detailed quote, she can automate that in Excel for you to take 30 minutes instead of four hours. Or if you have some reports that you're pulling from the system, whether it's on sales or operations or whatever, and then somebody has to maneuver and manipulate those reports for 2 or 3 hours every day or every week to create a dashboard or create some sort of visual so you as a CEO can make decisions out of it. Stephanie can make it so it's automated and it takes you three seconds.

Maggie Perotin (00:10:36) - So the value of her tools is tremendous and way beyond what she charges, because it's not only the time that, let's say the client saves in the next month or 2 or 3 after she creates that. And also the opportunity cost the time that, let's say, an employee of her client. Or even the CEO can spend on doing something else, something more valuable to grow the business. But it's also the amount of time they're going to use those tools. So let's say if she builds them a dashboard or two and they're going to use it for three years or five years, if you count that. And with how much time they're saving with that tool, the value of her tools is hugely disproportional on the value side to the pricing she's showing. And that's great because their clients love her and they have no problems paying the prices that she charges. And then that's when she's in demand and that's where she will be raising her prices soon. Then another example, when I was coaching one of my clients who were an insane interior designer, when she was talking to her clients and, you know, sort of showing the value of what they deliver and therefore justifying the pricing.

Maggie Perotin (00:11:55) - She was only focused on beautiful design and functionality of the space, and maybe the increase of the value, let's say if it's a residential home and so on. But what she was missing to communicate to the clients that we kind of discovered through coaching and that I helped her put together, was the value she offers in project management, in dealing with contractors, in ordering all the things that then the client doesn't have to write, creating also technical drawings for the contractor so they know exactly how to do everything right. So there's no disconnect. The designer designs something in the contractor does it, but not exactly the way. Right. All that more technical support is very valuable. And therefore again, it's worth to hiring an interior designer firm like her, not just for the beauty and the aesthetics and functionality, but also for not having a headache of managing the project and ensuring that everybody does what they're supposed to do in the way that it was designed, or that the vision, you know, the client's vision was.

Maggie Perotin (00:13:03) - So, as I said, when I work with my clients, we actually consider all of that in detail. Now, it doesn't have to take long, but we consider that and we brainstorm that when we set the prices. So they are fair to my clients, they're not underpriced and yet at the same time affordable to their ideal clients, whomever that is. I teach them how to communicate the value of their services and marketing and selling. So then the potential client doesn't have as much money, objections, or at least how to overcome those objections. Because when the clients can see the value of what you offer, the pricing becomes secondary. They're not going to contest the fair price where the value is huge and it's communicated well. And when you have that pricing that doesn't out price you from the market but doesn't, and underprice you, that's how your business can be successful long term. Because when you're profitable, you have resources to keep investing in yourself as a CEO, to keep investing in your business and keep growing.

Maggie Perotin (00:14:16) - Okay, so now let's move on to five steps to raising your prices without losing your current customers. So the first thing is, of course you need to decide on the race, right? What is the new price and how you decide that is through the five considerations I just gave you. You want it to be realistic, fair, affordable to your target market. Not to everybody, but to your ideal clients. You don't want to underprice or overprice. You want to be in a happy meadow. Unless you're a luxury brand and you want to be the most luxury ever. And then that means then your pricing should be extra and so on, right? But then you need to have marketing and branding and selling position to that. For example, you want to be a spa owner who does attract very wealthy clients and luxury clients and so on. Right? So that's possible. You can have then super high pricing and so on, but then everything in your business needs to support that. Truly, everything in your business needs to support whatever pricing you decide to be.

Maggie Perotin (00:15:28) - Wherever in the market you decide to be. The second step is focusing on your demand. So the amount of people that want to work with you, right? You shouldn't be raising prices when you're looking for clients and you don't know when the next one is coming from, and you're worrying that you won't have enough work next month or the following month, your demand, meaning the number of people that want to work with you, should support the increase in the pricing. And what I mean by that it should be. So big that you can't possibly serve everybody who wants to work with you. And then pricing becomes sort of one of the filters, right? Because pricing is the filter of the ideal clients. Again, if you're underpricing yourself, you're probably attracting cheap clients. And then there's challenges that come with it. So as you increase your price, you will be speaking to different clientele through that price. So you want to make sure that you have so much demand that there will be people within that who will still be willing to pay your prices when you increase them.

Maggie Perotin (00:16:38) - It's so much easier to do it as opposed to I don't have enough clients because of that. Let me increase the price because then I don't need as many clients. That's going to be even harder to sell your services when you don't have enough demand. And on top of it, you're increasing the prices because you think that will compensate for not enough clients. It won't. I promise. If you don't have enough clients at your current pricing, then maybe that's lack of the marketing and sales strategy and you have to focus on that, not increasing prices. And hey, I can help you with that too. I help my clients to do everything holistically. So then the third step in increasing the prices is deciding how do you want to raise your prices for your current customers? Because when you decide to raise prices, any new customer, it's kind of easy, right, that they didn't know you had prices, different prices before or majority of them don't know. So it's easier to communicate. Now if you are in a business where you have returning customers, not returning like, oh, they do a renew and three years later the return, that's kind of like new customer in terms of pricing increase.

Maggie Perotin (00:17:45) - But people who come to you on a regular basis. So let's say you're a massage therapist or chiropractor or photographer and you have customers that maybe take photos every month or every two months. Whatever other business you do, when people come back to you or like, I have clients who are Vas right, or social media managers and so on. When you have certain retainers and they work with you and the month, then you want to decide how you want to increase prices with them, right? How do you want to communicate the increase? So for example, my chiropractor increased the prices this year for new customers, but they have grandfather, me and my family or their previous customers. I don't think they will do it forever, but for now, that's the case. Now, the one thing that I would suggest that they didn't do is unless you're planning to grandfather your current clients forever, which I wouldn't advise you to do, so I would tell your clients how long you're grandfathering them for. So whether it's a year, six months, three months, whatever.

Maggie Perotin (00:18:47) - Because just so you know, like for my chiropractor, they sort of posted that they will be raising their prices in the new year in their, you know, in their waiting room. It's one. And I was expecting those prices to be raised for us as well, because the node didn't have anything about current clients and that they would be grandfathered and their prices increase wasn't that big and it was valid. They haven't increased their prices since even before Covid and so on. So I totally was expecting for them to increase the price for us and I would have paid it happily. I'm appreciative and grateful for the fact that I have my old price, but when they increase it for me, it's not going to be a big deal. So you see, sometimes you might think, oh my God, I will increase the prices for the current clients. And they're going to I'm going to lose them. Where that's not always the case. The current clients might be totally in agreement with them with that, and as long as they know they won't have anything to say, just like me in my chiropractor.

Maggie Perotin (00:19:48) - Now, you could decide that you are going to raise the prices for everybody, and that's a great. But just communicate that with your current clients and give them some notice. Don't drop it day on day saying yesterday you paid this and today is this. Give them some notice to prepare and sort of it will be easier for you to manage that change. Then the fourth step is to really overcommunicate that change and that really applies to your current customers. Again, if you are increasing the prices for them, but also if you have a following, an audience that have been with you for a while and they kind of gotten used to you talking maybe about pricing at a certain level, then you want to educate them about the price increase, in a sense, showing them again, what is the value for them, right. What's in it for them? Why are you increasing how they're going to benefit from it? Overcommunicate a lot of issues that I'm seeing in business is happening, whether it's at the marketing and selling level, whether it's the operational level, or when the customer service delivery, it's usually not communicating clearly or enough.

Maggie Perotin (00:20:59) - Or simply so the more you communicate, the better. Now, if you are in the business where you don't have a big following or an audience, you don't necessarily need to communicate a lot of that unless you use it as a selling tactic, because people who are new to you probably wouldn't know the prices that you had, right? So it does depend on your business. And when I work with my clients, we develop the best communication strategy for them and communication plan based on who they are. What's their audience again? What is the price increase all about? And then the last step is you want to be available to address any questions or concerns with it, and you want to even expect it. Right. So you want to think about, okay, there might be some clients who will have questions about it, even if I overcommunicate, how do I proactively answer those questions? And how do I prepare for maybe the increase of inquiries because of that? So you want to be prepared. You want to be okay about it, not get upset and not get result for my God, like I told them.

Maggie Perotin (00:22:10) - And there are you know, they don't understand why they're asking or whatever. You just want to be a professional business who is ready, who had a strategy, who thought it through and is implementing the strategy and also welcomes questions from their audience and customers. So that's it for today. I hope that was helpful. And if you want to double your business without adding more work and you want to increase your prices and you don't know how to go about it and it's so overwhelming, I can help you. And how I can help you is through one on one coaching and my top SEO winning strategy blueprint with owner first approach, where we really look at your business holistically based on what you want and the goals you want to accomplish, and then look at the steps that I taught you today and create a winning strategy not only for pricing, but for the services. And then how are you going to communicate that value to your potential clients in your marketing and sales in order to convert more of them in less time? Meaning I help you double your business without working more.

Maggie Perotin (00:23:23) - The first step is to book a free consultation with me. As usual, I'll put a link to my calendar in the show notes. So that's it's easy for you to book it, and the value you get just from that consultation alone can be in thousands of dollars. And you'll find out how when we talk. Okay. See you next week. Thank you for listening today. If this podcast resonated with you, please come back. Also, you can leave a review on whatever platform you're listening, and if you have a suggestion, question or a topic you would like me to talk about, let's get in touch via email. Email me at Maggie at. Stairway to leadership. Com. See you in the next episode.