How Do You Know When To Raise Your Rates As A Scaling Business Owner?
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The landscape of entrepreneurship is quite dynamic and complex, but you likely already know this from experience. To thrive in this environment, you must be able to adapt and evolve which means you’ll have to make some tough calls and quickly pivot.
Of all the decisions we are forced to face as entrepreneurs, many struggle with deciding what to price their offers at. And it doesn’t stop there… It’s also deciding when to adjust your prices and give your rates a boost. You need to realize that keeping your prices the same just won’t be doable forever. You hear me say all the time that what got you here isn’t going to get you there, and this is true for your prices as well. The prices that you started your business with are probably not the prices that are going to help you sustain that next level or that seven figures. You know that your prices have to change at some point, but how do you know when or how much to raise them?
In this week’s blog, we’re covering these three topics and how they play a role in knowing when it’s time to raise your rates!
High demand & capacity issues
Additions to the offerings
Increased cost to maintain the offer
Your Prices Can’t Stay The Same Forever
Most of the time when you first start your business, you are told by some “guru” some expert, or someone else that you need to price your offers in a certain way. We’ve ALL been there… Even if you are way beyond the beginning stages of your business now, you can probably relate to experiencing this at some point along the way, am I right?
But for many business owners in the beginning stages when you are told to price a certain way by some guru or expert, you don’t have the idea of growth in mind. At this point, you might not have realized what would happen with your business and maybe it was just a side hustle in the beginning, but you probably weren’t thinking about scaling right off the bat. Maybe this is how it went for you too… Then we end up girl bossing WAY too hard and now here we are running multiple six and seven figure empires changing the world every single day.
Now all of a sudden you’ve got this big business and there’s WAY more to be taken into consideration. You now have to take care of things like:
Employees
Payroll
Payroll taxes
There’s so much more that comes into the picture when it is no longer just you in the business. And for many of us, it happens really fast. You might have never started your business with intentions of reaching multiple six or seven figures, but one day you take a step back and you just think… How is this even possible? How did I get here?
Sometimes it just comes out of nowhere and then you’re dealing with contractors, employees, people in different states or even countries, lots of different costs, and it becomes inevitable that you have to raise your rates to accommodate for all of these things. Your prices at the very beginning stages of your business are likely wildly different than where you are at now, and I know this to be true for anyone who is reaching that seven-figure mark. When you start scaling your business to that next level you have to reevaluate how much you are charging for your programs, your offers, and your products if you are an e-commerce business.
You Know What Feels Right
I’m really big on energetics and the first thing I want to say here is that if you feel deep down that it is the right time, then it is probably the right time. This is one of those areas of your finances where it can be really empowering to tap into how you actually feel about it. Is that gut feeling telling you that it’s time to raise your rates? Don’t ignore how YOU feel about these things! There’s also a good time and place to have the conversation of when does it make sense to decrease your prices?
We’ll save that conversation for an entirely different blog because it is an equally important conversation to have, but one thing to point out here is that sometimes things like the state of the economy need to be taken into consideration. You might reach a point where your prices could be too high and it’s not allowing the buyer to make the decision. There is an element of balance here to find that just right price that feels good and aligned for you, contributes to your goals and supports the growth of the business, but also serves your clients. It's not just about when to raise the rates, but also when to decrease the rates. This can still be a crucial piece of the business too because sometimes you recognize your prices are too high and you just have to pivot and adjust.
Are Your Offers In High Demand?
If you're finding that you're constantly selling a service, a product, a program, or whatever it might be - it’s just selling like crazy - this is when you would consider that offer being in high demand. If you’re experiencing this, now is a good time to reevaluate your rates. You want to figure out why the thing you are selling is flying off the shelves, and it’s usually one of two things.
The first thing is that it could be priced way too low, people are eating it up, and there’s no resistance. You have to find that happy medium of increasing the rates to a point where you are still getting a lot of buyers but you are also getting a little bit of resistance. Here’s a good example of this…
There are tons of accounting firms out there that will price people $100 a month and this is truly just insanity. It blows my mind because I know that in order to really do what we do and do it well, it costs around $400 a month. Even knowing that there are still people out there who do it for super cheap. They will say things like… “I have a super high conversion rate!” or “People are always saying yes” but you have to see what else is involved that needs to be considered. People at this point typically don’t have a team, and it is just them. Because their rates are super low, they have really high conversion, but they are also drowning in work and working 60 hours a week. And we know that you didn't start your business to work 60 hours a week!
Having a high demand allows you the flexibility to increase your rates and make that call. It’s a lot easier to increase your rates than decrease them because typically if you decrease your rates, you are going to get people who purchased at the previous rates that will ask you for money back and stuff like that. If this were to happen, it’s important that you have things in your terms and conditions to protect you and the business. I recommend having a lawyer review your terms and conditions so that you are protected. I recommend Linsey Shae Consulting who is amazing at putting together terms and conditions for your programs and offers. If you need a lawyer to help you out with this, check out Linsey and get 10% off using our code MAGNETIC10 for any of her services!
The reason I recommend this is that if you are going to go back and forth with your prices, you need to have the right language in your terms and conditions that will protect you so that people who bought at a different price can’t come back and ask for the adjusted price. This is just a headache you don’t want to deal with, so invest in the right terms and conditions to make your life easy and protect you in this case!
What Is Your Capacity?
High demand and capacity are different. You start to run into capacity issues when your team and yourself are just not able to serve more clients and you are drowning in work. This can be a really tough spot to be in because you might really want the clients and the money, but how much quality work are you and your team able to deliver? I’ll give you a great example of this…
In my other company, WorkFlow Queen, we have a very big high-ticket program that is $5,000. In that program, we have a lot of students that are at a high-level in their business. Many of them are business owners at a high level in their firm who want to take things to the next level. We attract people at that higher scale and the problem is that they are asking really detailed questions that are very thorough and complex, which is great, that is what we want for this program. Now we are at a point where we are having a hard time handling all of the new students and keeping up with all of the comments and complex questions. So what we are finding is that our capacity is getting capped, and we need to consider hiring the right support to help open up that capacity.
When you get to the point where your capacity is capped and you need to hire the right addition to your team to open up more capacity, you now have to consider paying that person every single month. So you have to ask yourself if you will change the price with that additional cost to be taken into consideration. Capacity issues are really going to change the trajectory of whether someone's actually going to increase their prices or not. It really comes down to evaluating the demand and capacity and then your rates.
Additions To Services Or Products
Often times business owners will have an already really good offer, and as they grow and their business grows they decide to add things on to what they were already providing. If you are adding things on to what you are providing, you have to understand the value of what you are adding and determine if you should be raising your rates to accommodate that next-level value you are now providing.
You really have to understand everything that goes into providing that additional value in terms of team members involved, the time it will take, systems on the back end, and everything else that goes into providing that extra value. There’s always so much to be considered. Your capacity is also going to come into play here again, because with this additional value, do you have the capacity to serve as many clients? Here’s an example… Say that someone has a program that they have been running for a while and now they are going to start adding in guest experts to come into the program. You might have to consider increasing the price of the program to accommodate for these additional experts and the value that they are adding to the program.
Increasing Cost To Maintain
Are the costs that are required to maintain offering your products or services increasing? This is something we might all be experiencing with things like labor costs, employee fees and minimum wage increasing, software prices are going up, there are a lot of costs that are going up. This is exactly why it is so important to look at the trends in your bookkeeping. Keeping up with those trends is going to allow you to see how the costs that are required to maintain your offers are increasing over time. You can then use that information to make a data-driven decision on when it makes the most sense for you to raise your rates.
This is something that we offer to our clients so if you want to do an evaluation to see what are the direct costs for your services, we would be more than happy to work with you to see how you can get that cost down. If you are not looking at this data on a consistent basis, we recommend looking at it at least quarterly so that you can see the trends for the increasing cost to maintain your services or products. If you really want to understand this to know when you need to adjust your prices, you should know what your cost and your margin is on a monthly basis. You will be able to see how much it is costing you to serve per client and per service and this will really allow you to see if it’s time for a rate increase.
There are always going to be points in your business where you have to take a step back, evaluate what is really happening, and make pivots to align you with where you want to go. Your initial pricing strategy might have served you well in the early stages of your business, but as your business expands, so do your responsibilities and costs. Along with this, your pricing will need to evolve too. Tap into your inner knowing and use your data to feel empowered in making the decision to raise your rates. Grab a free consultation with us here if you’re ready to understand your data and evaluate your costs for your services, we’d love to support you. 💕
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