One of the biggest hurdles faced by entrepreneurs who are just starting a small business is figuring out what to charge for their products and services. It may take a little time, and possibly some trial and error, to arrive at the best price point. And, once you've reached the perfect rate schedule, it can change.
As a business owner intent on growing your business, you must consistently review your rates, products, and services, as well as the competition to determine whether or not your business can benefit from a rate increase. So how do you know if it is time to raise your rates?
There are a lot of factors that can impact the decision of whether or not to increase your prices. Here are six signs that it may be time for an increase.
You Have More Work Than You Can Handle
Having a waiting list, being overscheduled, or managing a back-log of orders are all signs that you may be able to charge more for your products and services. If the demand is there, the market will likely respond positively to a rate increase.
If your workload continues to build, you can raise your rates and then outsource some of the work in order to more efficiently meet the demand while still making a profit. And if your business continues to grow, a price increase can support hiring staff or expand your team.
Your Competitors Charge Significantly More Than You
You don't want to be completely focused on what your competitors are charging, but occasional research into your competitors' rates can help you ensure that you are not undercharging and that you remain competitive. Remember that low rates may get you some business, but in the long run, it's probably not worth building a reputation of being the cheapest provider around.
You Tested Charging a Higher Rate and Made the Sale
One way to test the waters of a higher price point before taking the plunge is by quoting a higher rate for new potential clients who request a proposal. If you do this a few times for new customers and end up winning the bids, it may be time for an across-the-board increase.
Aside from testing a particular price point before making it standard, this is actually a smart way to raise your rates in a small business. By going slow and introducing a higher rate to new clients and then to existing clients incrementally, you can manage the transition with your existing clients and make sure they understand the change fully before it happens.
Your Cost of Doing Business Is Increasing
Business expenses increase consistently for most small business owners, and your prices should reflect that so you can remain profitable. Keep track of your ongoing budget and expenses and use the numbers to figure out a fair price increase that will cover the cost of staying in business as it.
You Provide a Premium Service or Unique Product
If you provide a service or sell a product that no one else in your area can provide, it makes sense that it would come at a premium price. Start by exploring how your business is different from the competition and what value it offers that is unique to your business, and use that as a basis for a higher rate.
Your Rates Have Been Holding Steady for Longer Than a Year
Many business owners raise their rates once per year as a standard process. If it has been a year or longer since you increased your rates, you may want to evaluate where your business stands in terms of the market and your competition and see if a rate increase is in order.
Now that you've determined that it is time for you to raise your rates, you will want to make the change in a way that will strengthen your relationships with your customers, not send them to another provider. Use these rate increase tips as you get started.