When it comes to starting and running a small business, one of the hardest challenges for a small business owner is deciding what to charge for your product or service. This takes time and a bit of trial and error, but eventually, you will settle on a fair and sustainable price point. The problem is that often, once that point has been reached, it can so easily change. In fact, part of being a successful business owner is knowing when you should periodically review your rates, in relation to your competition. This should be done with a view to understanding if your current price points are viable or beneficial to your business. So here are six obvious signs that a rate increase is on the cards.
1. You have too much work to manage
If you have too much work to do, have a big backlog of orders or are highly overscheduled, it may signal that it’s time to increase your rates. You’re probably so busy because you are in high demand, and so the market will likely respond favourably to any rate increase you implement. Once you have raised your rates, if you are still incredibly busy, then you may find that it’s time to outsource some of the work in order to be more efficient, while continuing to make a profit. A price increase will also help you manage the additional costs of bringing support staff into your business.
2. You are a lot cheaper than the competition
You may need to keep an eye on the competition and what they are charging, in order to gauge if you are operating in the right ballpark. Bearing in mind that you need to remain competitive without undercharging. While low rates may help you secure business in the short term, it’s not worth creating the impression that you are the cheapest provider in the market.
3. You tested a higher rate and closed that sale
Before taking the plunge and increasing all your rates, try quoting another customer for a higher package. If you manage to secure a few of these customers then you can consider implementing a rate increase across the board. You can also consider an incremental change by only offering the lower rate to existing clients while offering new clients the higher rate. This will help you manage a transition without compromising existing relationships.
4. Your costs are increasing
There is no point in running an unprofitable business. So if your low rates result in unnecessarily high running costs, it may be worth recalibrating. Make sure you track your budget, and expenses in order to see where you stand, and if need be set a revised rate which feels fair to both you and your client.
5. You offer a premium product or unique service
If you are a small business which offers a unique product or service where no one else is operating, then it makes sense that you might charge a premium for it. So it is important to figure out if what you are offering is specialised enough to justify a higher price tag.
6. Your rates have been stable for over a year
Most businesses raise their rates every year. If you haven't changed anything over an extended period then it may be time to reevaluate your product in relation to the market. Implementing annual increases is generally expected across markets because incidental running costs, fuels and other factors generally increase annually, so the consumer is likely to understand this.
The bottom line
Once you have decided to increase your rates, make sure you manage this process professionally. Give your clients notice, offer them a transparent reason for the change and ensure you follow up with major clients to ensure this is manageable and sustainable. At the end of the day, your rates should be fair for both you and your customers, but more often than not people are more than happy to pay well for a high-quality product and service.