Written by Alexandra Terreri – Manager at Growth IQ
Pricing can be a confusing topic when you’re starting your new business. There is no concrete formula or sure-fire way to know exactly how to price your product or service. Many startups often set discounted prices as a result of this ambiguity. This will get the business off to a rocky start and will have a negative impact in the long run. Ensure you get this right the first time by setting your price at a point where you value your time. While there may be fear regarding how your chosen price point will be perceived by others, it is important to remember that customers aren’t always deterred by high prices. Customers value how well you look after them, and how reliably/successfully you deliver your product or service to them. You need to encompass the belief that you and your business are worthy of receiving the fee you have set. By doing so, you will attract the type of customers you desire and ensure your cash flow remains healthy in the process.
Here’s the hot tip…
Before you go live – Partner with a qualified professional to conduct a proper financial analysis of your business plan, bench-mark your prices against competitors and forecast anticipated cash flow. This analysis will set you up for success well before you make your first sale. Sadly most start ups fail to do this at all before putting it all on the line and going live with their product or service. For a small fee (around $2,000) you could be saving or potentially making yourself 10 X that amount based on the outcomes and insights generated from such a service. Hows that for ROI???
When to Increase Prices
The first sign that you should increase your price is when you can’t meet demand. I.e. there is a long queue for your work. This could be affecting the quality of your work as you are trying to pump out as much as possible, in a short amount of time to keep customers happy.
Here’s another Hot Tip your current customer base is 7 times more profitable for your business on average for a whole host of reasons I wont go into now. Look after your loyal customers rather than chase new ones!
Another sign could be having feelings of bitterness/unfulfilled towards your work (as a result of working long hours, for demanding customers, with only a small reward for your time and efforts)
Lastly, being unable to cover monthly overheads would strongly indicate the need for an increase to the price of your services
How To Increase Prices
Add extras. Customers are far more likely to accept higher prices if they’re getting something extra. Consider what you could throw in with your current product or service that would cost you little or nothing but would have higher perceived value to the customer.
Time your price increase. Best to do this when customer satisfaction is at an all-time high. Ensure you have considered how your overheads/expenses may increase over the next few years, not just the immediate future.
Increase the detail in your invoices. Itemise in detail all tasks involved in the services you are providing to your client on your invoice. Aka be SPECIFIC and CLEAR in what is included in your fee. Ensure you charge for any extras and always discuss the value of any further additions.
Pre-announce any price increases. This shows courtesy and consideration. Do not let your customers find out simply by receiving your new invoice. For any new clients, you may give them a larger grace period before their prices also increase. In the case of products, it can give the customer a chance to place one more order at the existing price. This may give a customer time to re-consider their relationship with you – however you can also use this time to focus on nurturing the relationship you have with them.
Offer occasional discounts. To keep your price conscious customers happy, offer them discounts from time-to-time or for specific services that will bring your prices back down to their original level.
Raise prices at regular intervals. If it is justified, raise the prices at the beginning of each new financial year, or after a customer has been with you for 12 months.
- Be prepared to explain why you are increasing your prices (higher overheads, better services) to customers who may get upset.
- In order to be paid what you are worth – you need to charge what you are worth. Important to believe that your business is WORTHY of the price increase.