Making decisions around raising your rates can be tough. We often worry about the amount we should charge for our services and how a price increase will affect our ability to retain and attract clients, but choosing the right time to increase our rates is equally important.
While it can be common practice among small business owners to increase their rates annually, often at the beginning of a new year, this may not be the right time or frequency for your specific business. Every business has a different timeline or cycle for updating their rates.
Here are five signs to look for in your business that tell you it might be time to raise your rates.
Your Business is Growing From One Stage to the Next
There are three main stages of business; New Business, Expansion and Growth, and Established. In each of these stages, you have different priorities and different situations affecting your revenue, and therefore your pricing.
In the New Business stage, your priorities are getting new clients, generating revenue, and building brand awareness. It is not uncommon to have introductory rates for your services during this stage. Having introductory rates may be a great way to build your business, and may also make the most sense considering you haven’t yet built up years of experience.
However, as you transition into the next stage of Expansion and Growth, your priorities also change. These may include maintaining sustainable revenue, implementing time management skills, and developing systems to automate your business processes. Once you’re in this stage you may be very busy, in fact you could have a full clientele, yet not yet be profitable.
This could be due to the fact that your initial prices were not designed for profitability, but for the purpose of generating business. Now that you have plenty of clients and more experience, it may be time to ensure that you are generating enough revenue to be profitable by increasing your rates.
Time Management is a Problem
During the stage of Expansion and Growth, time management will most likely become an issue. You have more clients, which means more client work, and less time for managing and growing your business. It may be time to delegate and build your team. This could mean bringing on contractors, such as hiring others to manage social media, handle the administrative side of your business, or implement and maintain the technical side of your business. It might also mean starting to hire employees.
When your business was a solo business, you only needed to worry about paying yourself. But when it’s time to build your team, you need to make sure that your rates cover the costs of that team and everyone you need to hire. If you build your team without increasing your rates, you will most likely lose money.
It’s also worth noting that if hiring is in the near future, it’s a good idea to incorporate this into your pricing strategy so when it comes time to hire, you have the funds to do so.
Increased Need for Resources
This can happen at any stage of business growth, but happens often during the Expansion and Growth stage. As your business grows, you will find you need additional resources to not only continue to grow, but to sustain your business. The more clients you have, and the larger your team is, you may find you need to invest in new software or technology to support both.
You may also need to invest in things like a new website, new branding photography, or even need to lease space. All of these things are a big investment, and making sure you can afford them when you need them is critical to success.
You’re Niching Down
As your business grows, you may decide that you want to have a more defined market, or reduce the number of services you provide. This may include offering specialty services that are more valuable than the general services you were once providing. Having a specialty that is hard to find could be a good reason to increase your rates. Not only are these services more valuable from a consumer perspective, but they represent your level of expertise and knowledge.
Niching down may also involve focusing more on improving the client experience and offering a higher level of support. This might involve taking on less clients, but having an increased capacity to serve them better. With more time and attention to each client, there is good reason to also increase your rates.
You Need to Support Sustainability and Future Growth
It can take some time to get your business up and running, and to a place of being profitable. Early on, as previously mentioned, generating revenue and clients was top priority and it was “ok” to not reach the goal of profitability, just yet. But this isn’t sustainable. Eventually, you need to generate enough revenue from your business to cover your expenses, pay your salary, as well as for anyone you add to your team, plus have money left over for savings and growth.
Your business will most likely require the occasional investment to take things to the next level. Ideally, if you can save ahead of time for these investments, you’ll be in better shape. There may also be unexpected expenses for which you want to be prepared.
As a business owner, you are responsible not only for your business, but for your personal financial wellbeing as well. This includes having enough money set aside for retirement, vacations, possibly a college fund for your children, or unexpected expenses that may arise.
If you’ve been experiencing any (or all) of these situations, now may be the time to consider raising your rates. If you need some guidance on how to do that, you can schedule a Discovery Call with me. Let’s discuss ways to help you build sustainability in both your business and your life.