Is it time to raise your price?

Welcome to Business Tips with Michael Tobian. Today I ask you “Is it time to raise your price”

Pricing is a tough thing to get right, especially for a newer business where the owner may not have enough experience in the industry to have a feel for what the market will bare. Seasoned business owners also face challenges with pricing as they sometimes don’t adjust their expectations with the reality of what their value is. Because each industry and business is different, I’m not going to suggest what price you should be charging, nor will I necessarily be suggesting you adjust your price. I do want to propose some concepts though and I’d like to suggest some questions that you ask yourself to help you determine if a price adjustment is needed for your product or service. Let me propose two questions for you to ask yourself:

- How much business do you currently have and why?

- Are you the value option or the luxury option

How much business do you have? If you are priced too high, it’s probably obvious to you. You might get a lot of pushback from customers or you may lose a lot of business due to your pricing; however, it’s not always easy to recognize when you are priced too low. I often find that successful service businesses have the problem of being too busy. Sometimes in these situations, they aren’t charging enough. Why would you want to work full time with a long waiting list at one price point, when you can work full time with a slightly shorter waiting list at a higher price. I HATE turning down work because I’m booked. If your price isn’t high enough, then you might be leaving money on the table. Let me give you 3 examples of conversations that I’ve had with business owners that illustrate this issue:

Example #1 - I got a quote from a highly respected construction company once and they told me that they were booked out solid and wouldn’t be able to get to my project for 3 months. I knew the owner and was comfortable enough with his friendship to ask him the question: “why aren’t you charging more money?”. He responded that he felt that their pricing was right. It clearly wasn’t though. If you are turning down work, or can’t get to your customer’s needs for 3 months, then you either aren’t scaling effectively (meaning, you don’t have enough employees or capacity to get the workload done) or you aren’t charging enough. To solve this problem, you might look into how to invest in your company to be able to handle more work, or increase your price so that your waiting list is shorter. Customers on your waiting list will be happier and you will make more money.

Example #2 – I have a friend that is a very in demand music teacher. He has 50 students with a waiting list, in addition to session work, live gigs and other music related business. He said he was considering raising his price by a very small amount. Being in the music industry myself, I have a pretty good handle on what the going rates are. He was on the higher end of the rates but there are people in town charging more. I suggested to him that he significantly increase his price for lessons. He was shocked to hear the amount I had suggested. In talking through the scenario, I believe that if he could charge enough to eliminate the waiting list and have his students at about 90% capacity (rather than over 100% capacity), then he would be making significantly more money AND it would free up some of his time to do other things. Because he is such an in demand teacher, I believe he could have almost doubled his price. Ultimately, I don’t believe he followed my advice because he just couldn’t wrap his mind around that big of a price jump. I have a business that provides a very high end luxury service. We charge sometimes over 10 times the price of other services, but our clients pay it because we are worth it and we are that much better than these services. Your clients aren’t going to advise you to increase your price. They will only tell you if you are too expensive, so this is something you have to analyze and take the risk to do on your own. You can easily get stuck in a price point that is too low and no alarm bells will go off. You will just be slammed.

Example #3 – As a teenager, I did some temporary work for a printer sales company. The owner was a savvy businessman. On a break, I heard him walk up to the sales manager and he said “what are we charging for this this product?”. The Sales manager told him. Then he said “how many of these are we selling every day”. The sales manager again told him. He then replied “yeah, those are flowing in too fast, let’s bump the price up to X amount”. Even as a teenager, I was taken back by how quickly he had made such a decision. Many people wouldn’t bother examining the price of a product that was selling well. I’ll bet that this individual rarely left money on the table with his products.

Question number two: Are you the Value option or the luxury option

- I was in the social media app “clubhouse” today and I was listening to a discussion about being in the luxury market. Much of the discussion dealt with the nuances that are expected from vendors that deal specifically with high end clients. We discussed everything from the way contracts look to the way you dress and present yourself in a higher end market. Most of my business endeavors are in this high end market. My customers are usually businesses and individuals that are willing to pay a premium for the best product. Their goals are different than clients that work within a limited budget. Certainly in any market, budgets and pricing is a consideration but my sales process is more focused on giving my clients confidence in our product than it is on convincing them that we are inexpensive. Similarly, our efforts in fulfilling our services are focused on extending the client’s expectations in every way, rather than cutting corners. I’m in the wedding industry as a provider of wedding entertainment. In my area, I’ve noticed that there seems to be two completely separate wedding wub-industries. The destination market, that deals with high end clients with large budgets, often traveling in from out of town and the local market that deals with lower budgets. This past year, I had a conversation with my staff about this. We decided to make it a goal to connect with and get to know every single wedding venue in our state. There is a lot, so we are still working on it. One of the things I noticed is that there is almost NO crossover between these two markets. The venues that are servicing budget friendly clients are recommending completely different vendors than the ones that are hosting destination clients. At one such venue, the name of a very well known catering company came up. The venue coordinator at this small venue had not even heard of this company. While the majority of our services are for high-end clients, we have many bands and ensembles that represent a lower price point as well. While in the process of navigating this, we find that we are featuring different products to each sub-industry. The lower budget client venues tend to be more interested in our string quartets and jazz combos and the high end venues are more interested in our high end party bands, acts and extended services. Regardless of what industry you are in, examine who your clients are and what your services represent. Do you offer a high end, premium service, or do you provide a budget friendly service. If you are in the luxury service market, then you may want to examine your pricing in a different way. Are your services worth more than your competition? If so, maybe it’s okay that your are priced higher. Ultimately, the free market will make this determination.

I hope these concepts helped you to view your pricing structure a little differently than you have in the past. Good luck and make sure to subscribe and follow for more business tips from me