Part Three: Five Pricing Tactics You Should Dump Immediately
Which of the following statements is true for your business?
a) “Post your prices on your website and marketing material to reduce unqualified leads.”
b) “Setting high minimums means you will make the most revenue during the busy times.”
c) “You should raise your rates every year.”
d) “Offering discounts or pricing below market cheapens your brand.”
e) “Prospects who negotiate during the booking process are not the right fit for your brand.”
Hint: None of them are unilaterally true for all businesses.
If you’ve been reading the past few weeks’ worth of blog posts, you know I’m not a big fan of one-size-fits-all pricing plans. Pricing advice we receive usually comes in the form of “do this and you’ll realize the kinds of sales you want for your company,” but not all companies sell the same kind of stuff or are at the same development in their maturity cycle.
In the last two posts, we explored myth #1 and #2. Today’s topic will address myth #3, the thought that you should raise your rates every year around the beginning of the year. This myth I don’t dislike as much as the others, which are potentially really damaging. I do think the reasoning for raising rates and timing of it should be unpacked a bit to reveal some better “best practices.”
We’ve all heard it before: It’s a new year, so you should have new prices. In general, I like the concept of driving up rates for your product or service. If you can charge more for what you do, it’s usually a sign of increased demand for what you’re doing, and hopefully that’s because you’ve done a great job at conveying your value to your clients.
Why do this every year around the same time, though? Most advice givers I’ve heard recommend increasing rates when the calendar rolls forward for a new year. I get it, the logic is sound: You want to get make more money so you need to raise your revenues and the easiest way to do that is to increase your prices. Now, you need to tell your repeat clients and your referral network that you’ve raised prices for a reason, and it’s easy to tell them “new year, new rates.”
Except that’s a really lame reason. The unstoppable progression of time doesn’t have any impact on the cost, supply or value of what you sell, and these are the primary reasons you should raise your rates.
If you make something out of raw materials (eg. flowers, food, or paper), and your costs from suppliers start to go up, this would be a good reason to increase your prices and something you can talk to your clients about. “Prices for roses are through the roof, because a freak freeze in Bolivia killed off an entire crop and the supply chain is in upheaval.” This is believable and people can understand why the floral arrangement crept up in price.
If you’re a planner or designer, your rates should never be fixed and published, anyway, so it’s a moot point. Each project has a unique, subjective value or scope of work depending on the client’s needs, and so each prospect should be getting a unique, directed proposal for the work you intend to do for them.
If you’re a photographer or DJ or venue, and you want to raise your rates, you should be looking at the supply of available dates before making your decision. I was talking with a couple of photographer friends of mine the other day, and they said, “We’re about 75% of the way to our booking goal, way ahead of last year’s pace, and so we think now is a great time to test the waters with some new rates.” Hells bells, they hit the nail on the head!
My friends could even add a persuasive note to increase the scarcity of their dates by saying (well into the booking process) to their prospects, “We’re filling up fast and only have a few dates left for this time of the year.” Of course, since this is true, they are simply doing their clients a favor by letting them know they have a short supply and they should book soon. There’s nothing unethical about this, and it is a tried and true sales tactic that works well when done with a soft touch.
The best time to raise rates for availability/time-based businesses is when demand for your future dates is high and you’re comfortable with the booking pace for future clients based on previous years’ numbers. If you’re way ahead of last year’s pace, raise rates, try something outrageous. What better situation than being ahead on pace to take an eager prospect who you think will book your services and give them the “new” price to consider, rather than the “old” one? If it works, great, try it again with confidence on the next prospect. If it doesn’t work, evaluate if price was really the concern, and be sure to try it again with another prospect before writing off a failed opportunity to raise rates. (Once is a fluke, twice is a coincidence, three times is a pattern, so don’t get caught up into )
As you can see, rate raises should occur for good reasons and at times that make sense for the business. Absolutely, increase your pricing as your business matures and develops, and be sure you do it for the right reasons. If you do, you’ll learn a lot of good information and feel great about the process along the way.