You deserve a raise.
Yes, you. You the hairdresser, the restaurant owner, the freelancer, the consultant. You deserve a raise just like the people who work for corporations do.
After all, you’re in business just like they are. It’s just the business of “you”, where you’re the one running the show.
Don’t forget that your costs are going to increase every year, thanks to good old inflation. The cost of gas, food, clothing, supplies, insurance – they’re all going to creep up on you.
Many small business owners, and freelancers, worry about raising their rates. They’re concerned that they’re going to lose customers or clients. That those customers will just go to the cheaper alternative down the street, or with the click of a mouse.
And you may lose some customers. But you need to think long term. And you can’t function long-term without giving yourself raises.
Let me tell you the story of what inspired me to talk about this topic, and give you some tips and tricks to raise your rates without alienating your customers and clients. And if you’re a small business owner, or freelancer, leave a comment with your top tips for your fellow readers!
The Inspiration – My Lovely Hairdresser
On Saturday morning, every eight weeks, at 7:45 AM, I go to the hairdresser.
My hairdresser is a lovely woman. She has three kids – two in college, and one who will be there shortly. I’ve been seeing her for about fifteen years now, and been with her through four different locations.
It’s hard to find a good hairdresser, and when you find one, you stick with them. Remember this – it’s a key point we’ll return to later.
This time when I went, this happened:
Like every business owner, I’m sure her costs are increasing. Not just the costs of her own life – feeding her family, putting kids through college – but also the cost of supplies and rent.
Price increases should be a regular event in your business. In fact, she and I talked about possibly raising them a little bit every six months, to help cushion the blow of a large unexpected increase. This is similar to advice that my friend Kathy from Baby Boomer Super Saver shared on Twitter after seeing my post:
So how do you increase your prices, but without alienating customers and clients? There are a few different tips and tricks I’m going to share with you today.
Make It A Regular Occurrence
As Kathy said, you may want to schedule your price increases like clockwork.
Now, this doesn’t mean you can’t ever deviate from your set schedule. You need to evaluate your costs and price accordingly.
There are some cost increases you might not be able to anticipate. Maybe you own a restaurant, and the price of coffee has skyrocketed. Or perhaps the cost of rent went up. Whatever it is, you need to regularly re-baseline your expenses and set your prices so you’re still making a profit.
Commit to yourself to regularly increase your prices. If you run a service based business, like a daycare or consulting, you might want to build steady increases into your contracts.
Setting your increases on a schedule helps your clients and customers to anticipate those changes. If you can keep those increases to a set amount, that helps even more.
Don’t let years and years go by without changing prices. If you do that, you’ll find your business consistently less profitable, forcing you into a random (and likely high) increase at some point.
Surprising your clients and customers with a large increase can make them unhappy.
Remember The Stickiness – And Switching Costs
“Stickiness” is a concept used in business, to describe what makes clients and customers stick around.
“Switching costs” are the cost, in dollars or other factors, to change suppliers, products, or services.
You can make your business a “sticky” one by offering an excellent product or service, making your clients and customers stick around. And you need to remember that in the products and services you’re offering to customers, they will incur a cost to switch to another supplier.
Do you remember how I said that it was hard to find a good hairdresser? If I were to try to find a new hairdresser just because her prices went up, I would likely incur the costs of sub-par haircuts in an effort to find someone who can help me.
In addition to the cost of sub-par haircuts, there would be the mental costs of walking around with terrible hair for a while.
Do I want to risk that because I don’t want to pay my hairdresser an extra $5? No, I don’t. And neither do your clients and customers.
Remember, the products and services you’re delivering have value. If you’ve built your business the right way, there’s a reason people come to you rather than someone else.
Copy The Big Companies Strategies
Have you ever gone to the grocery store and seen a product that was the same cost, but the package was smaller?
Perhaps the item used to go on sale every month, but now goes on sale every six weeks. Or where you used to be able to score a $1 off coupon, the coupon is now for 75 cents off.
You know how airlines charge for things that used to be free – like taking a second checked bag? Or if you’re flying Spirit airlines, breathing air?
You can copy these same strategies for your own business.
If you offer a product, you can scale back a bit on the size, saving you money.
You can make features that used to be free paid upgrades.
Don’t put things on sale as often, or decrease the value of your coupons.
Use the strategies of big business to help you give yourself a raise, without changing your clients and customers prices. Every little bit helps!
Don’t Apologize – Focus On Value
You don’t need to apologize for giving yourself a raise.
When it’s time for my annual review, I don’t apologize to my employer for getting a raise! And if you’re apologizing, your clients and customers feel uncomfortable.
It also focuses them on the increase in your prices, rather than on the value you’re delivering.
So don’t apologize. Talk about price increases matter-of-factly. Here’s an example:
Instead of:
“I’m so sorry, but I had to raise my prices a month ago. My costs have gone up, and I haven’t raised them in five years. If you want it to be less expensive, I can skip the extras for you!”
Try this:
“Hi! Great to see you. We’ve been so happy to serve you and the community this year, (insert specific example of something awesome your business does). As you know, costs increase every year, so as of “X” date you’ll see a small increase in costs. We’re looking forward to continuing to serve you for this – and many more – years!”
Or, alternatively, don’t announce the increase at all. If you’re changing your prices by a small amount on a regular basis, customers may not even notice. If someone asks why the change in price, simply (nicely!) explain that you increase your prices regularly to cover the increases in your costs.
Apologizing doesn’t help you or your customers. Just check out this recent research, which shows that “… giving and receiving apologies can sometimes elicit what [the author] describes as ‘survival emotions,’ such as fear, anger, disgust, shame or sadness, which pump the stress hormone cortisol into our brains.”
Don’t stress out yourself or your customers by apologizing. As I said, myself and millions of other corporate workers don’t apologize to our employers when we get raises. In fact, I’m more likely to see people complaining they “only” got a 2-3% raise than I am to see them apologizing for costing their employers more!
You work hard. You deserve a raise. Not only to reward yourself for your own hard work, but also to keep your business profitable.
After all, if you go out of business and have to shut your doors due to lack of profits, you’re not serving anyone.
I Want To Hear From You!
Do you own a small business? Freelance? Have any tips for communicating price increases to your clients and customers – or want to ask for advice? Leave a comment below! I would love to hear from you.
Excellent topic and excellent suggestions (I really like the idea of writing the increase into the contract from the beginning). I also like the idea of not apologizing. I need that advice.
I used to teach guitar lessons (and may do it again someday when my child is older). When I raised my rates, I would let old clients stay at the old rate (while new clients signing up would get the new rate). However, sometimes people talk to each other in a small town, and I never wanted anyone to wonder why it was different for one family over another. This is just something to think about as you work out your pricing.
Liz – I can’t wait to listen to you on the ChooseFI podcast btw!
I have been caught with the difficult decision on pricing with 2 of my businesses. One business I started over 25 years ago baking wedding cakes. About 15 years ago, my clients were more than willing to pay for my expertise and good customer service. But during the recession, things slowly changed. I wasn’t affected immediately as I had heard from bigger ticket vendors like photographers, florists, and wedding planners. But the trickle effect eventually affected my cake business.
My prices were increasing, couples were spending less, and I was faced with a business dilemma. Do I increase my prices to keep my client base or chance losing new orders with an increase? It is a difficult decision for small business owners.
I feel that we be willing to change our business (within our comfort zone of course) in order to keep up the currents market trends. In my case, brides were opting for a less expensive option of cupcakes, dessert receptions, and doughnuts. I did eventually add cupcakes to my list of services but chose not to add on pies, cookies, or doughnuts.
As business owners, change is two-fold. We need to remain confident and happy in our product or service that we offer while being open to new and unexpected ideas.
When I price out my services or products, I figure my cost of goods and add on what I feel I am worth per hour. I compare this figure with my competitors to make sure I am not over or under priced.
Your example of the hairdresser is on point. But there are still some folks who don’t care if they get a bad hair cut or a sub par cake. They are just looking for a bargain at the risk of losing quality. So you have to ask yourself if you really need these customers.
Good article.