Should Your Small Business Follow Amazon’s Lead and Raise Rates?
March 13, 2014
Raising your small business fees doesn’t have to be a negative move. Follow our tips to raise your rates without causing a major problem for your business.
A big part of small business success is profitability and a big part of profitability is what you charge – meaning your business’s success is largely dependent on your rates. The importance of setting the right fees is a priority for both small and large businesses. Just today, Amazon announced it would raise the price of its Amazon Prime membership from $79.99 to $99 per year. Should your small business follow Amazon’s lead and raise rates? Before making the decision here are some things to consider.
As a start-up you set your prices based on the expenses and goals you had at that time. As your business grows the value you deliver has increased, expenses are growing and your profit margin is shrinking. But, you’re worried that increasing prices will alienate your customers. If you’re a consultant or work on a contract basis, it’s even harder to raise rates because that means negotiating a new contract. Here’s the thing: If you don’t increase your prices your profits will continue to fall, which isn’t sustainable. You know you need to raise prices, but where to start? With a pricing strategy based on how you charge (by the hour or by the project). If you know WHY you charge what you do and can explain the basics of that to your clients you’ll be confident in your rates and clients won’t feel like the raise is arbitrary When changing your rates you also must consider HOW you’ll do it. One idea is to set a benchmark and raise your rates after you’ve reached it – say by raising your rates each year for new customers or after every fifteen new customers. With existing clients it’s trickier, because they know your old rates. Directness is your best bet. Contact them to explain the change and negotiate a new arrangement for work going forward, or a graduated price change that will break the overall increase up into several steps. You don’t want to raise prices and expect clients to adjust their budget immediately, that will only alienate them. And what if one or two clients balk at the increase and refuse to continue doing business with you? When this happens it’s often the clients who were the most demanding who leave – which is actually a great thing as it frees you up to land new contracts with more agreeable clients who have no problem with your new pricing. Win! So this week, take a good look at your bottom line. If you need to improve it, your next step is to examine pricing, with the outcome likely being a realization that you need to raise your rates. If so, check out the free pricing advice from Inc. Magazine and the Small Business Administration, which will help you target your best pricing faster. Every small business owner has reasons for raising prices, and the right to do so. You may be met with some resistance, but you’ll also get a lot of client comments along the lines of, “I’m surprised you didn’t do this sooner.”