Episode 53: How to raise your prices for existing customers

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A few key principles on how to raise your prices for existing customers. Full transcript below.

Welcome to the Business Numbers Podcast. I’m your host, Ben McAdam. I’m a profits coach, virtual CFO, and entrepreneur. And I’ve created this podcast to help you grow your business profits and understand your business numbers without judgment and without burying you in a whole bunch of jargon that you don’t need, just actionable tips and case studies to help you grow your business. For show notes, go to the website, businessnumberspodcast.com.

In this episode, I want to talk to you about a few key principles on how to raise your prices for existing customers. These are from an upcoming workshop. Obviously I can’t tell you everything that’s gonna be in the workshop, because that would need a workshop’s length of time and I wanna keep these episodes concise and to the point.

So first principle: get your head ready. It’s okay if they leave. 

Now, this is the really difficult bit. If you could do this bit, honestly, the rest of raising your prices is just like a series of steps to check off, the real resistance and the real issue is getting your own head in the right place.

If you’re not okay with this, you’ll come off badly in any negotiation that you have afterwards, or you’ll just chicken out on the whole idea. And no judgment- I have been in this same position, I’ve chickened out once or twice myself.

So something that usually helps people be more okay if clients leave is this idea that you can still be as profitable if a surprising number of your clients leave due to a price rise. Now I wrote a whole blog post about this. You can google “profits collective still profitable”, and it’ll bring the blog post up for you.

But the basic idea is that imagine that you have a thousand dollars of revenue, whether that’s per week, per day, per hour, whatever, there’s a thousand dollars of revenue coming in from your existing customers on a regular basis. And I tell you to double your prices and you do it, which puts you ahead of most people.

So you double your prices and now, instead of a thousand in revenue you’ve got 2000, which is great, but then half of your clients leave and you go “Ah, this is terrible, revenue’s back to a thousand dollars. Ben, why did you make me go on this horrible, emotional roller coaster?”

And it’s because while your revenue might be the same as it was, your costs have halved because you have half as many clients. So in fact with the same amount of revenue you’re actually more profitable than you were before half of your client base ran away from your price rise.

Now there’s a bit of nuance to it, because it really depends on what your gross profit margin is, how much money you keep after paying for the client or customer to get what they paid for, whether it’s a product or a service.

It really depends on what that is as to what percentage of clients you can afford to lose and I talk about that in the blog post, but for now just keep in mind that it is possible for customers to leave and you are actually better off than before the price rise. So that’s point number one. 

And one other thing is every time I’ve done this with a client, the result is more revenue and more profit than before the price rise. So the ROI is there, it’s absolutely worth going through it. So get your head ready and I’ll move on. So that was the first point: getting your head ready that it’s okay if they leave because of your price rise. 

Number two: do an advance notice sales push. 

Whenever you’re raising your prices you can talk to potential customers that haven’t yet signed up with you or haven’t yet bought something from you yet and say “Hey, just giving you a heads up that our prices are going up. So if you’re thinking about moving forward, now’s the time”. And it can encourage people to pull the trigger rather than putting it off until sometime in the future. 

Point number three: do a small private test with your price rise.

I said before that a good portion of your customers could leave and you’d still be better off, or you’d be just as profitable, but if every single one of your customers leave that’s obviously not a good thing. So do a small private test, and if absolutely everybody decides to leave for some reason, then you can learn from that. Maybe it was the way you communicated it, maybe it was that it was too big of a price rise. Maybe it turns out that most of your customers are actually unhappy with you and have been thinking about leaving anyway and you just gave them an excuse to think about it and finally pulled the trigger.

So doing a small private test is a good way to find out why and to learn. If you do it one customer at a time you’ll learn, and the next time you do a price rise on the next customer you’ll be better at it, and better at it, and better at it. 

So small private tests. It’s also a good way that, you’re not doubling your prices on everybody, sending an email out to everybody, and then they all leave. That reduces that risk for you if you do this small private test. So that’s point number three.

Point number four: be ready to deal with the pushback.

So there will be some people that will try and not to get a price rise. Wouldn’t you? It’s kind of natural. There may be a surprising number of people that just go, “Okay, yeah, I thought you were under charging”, but you’ve got to be ready for the push back. So be ready to negotiate, have in mind what your fallback position is.

So you might go from $500 to a $1000 and but you have a fallback position of 850 or $900 if they push back and you really want to keep that particular client, have a negotiating position. And maybe build that into your price rise. Assume that your customers are going to want to negotiate it down a bit so that, if you want to raise your prices from 500 to 850, say that the price ris is to 1000 and then negotiate back those to 850 who want it, and then maybe some won’t and that’s some extra money that you’ve pocketed.

Also be ready to let them go with the long term in mind. So if they push back, you have to say, “Well, look, this is what it is, otherwise I can help you find another service provider or you’ll have to look for another person to get the products from”, or something like that.

Let them go in a nice way because they may try the field, they may play the field or….go…play the field- I don’t know what the metaphor is. But they may go and they’ll find out that it’s worse and they want to come back. But if you’ve been unpleasant and unprofessional, then they won’t come back to you just for spite, because you’re a horrible person.

So let them go and say “No worries, it’s really a shame that our professional relationship has got to come to an end, but unfortunately I need to really keep these prices at the new levels.” You can be nice about it, you can say, “Look, we’re giving you 30 days notice here, we can do a little bit of help on the transition.” even if you wanna be that generous. But if you’re professional, and still maintain the same kind of high quality relationship that you’ve had before, then they’ll go out, they’ll find out it’s terrible out there, and they could come back.

So that’s point number four: be ready to deal with the pushback. 

So what we’ve talked about, a quick recap:

Get your head ready- it’s okay if they leave.

Number two: do an advanced notice sales push.

Number three: do a small private test with the price rise.

And number four: be ready to deal with the pushback.

So that was just a few principles. Like I said, I couldn’t talk at workshop level of detail, like what to write in the email that you send them about the price rises, or what to say on the call that you have with your bigger clients or customers about the price rise, but I hope this was helpful. And most importantly, I hope your next price rise goes great. Good luck!

Thanks for listening to the Business Numbers podcast. Subscribe in iTunes, Stitcher, or on our website businessnumberspodcast.com. Also on the website is a free basic concept webinar and a contact form for submitting questions that you’d like me to answer on a future episode.

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