How often do you evaluate the price of your services? Do you find it challenging to increase the price of your service, or do you find yourself unable to communicate exactly why an increase is necessary to your clients and customers? Or maybe you find yourself doing double the work after a price increase to overcompensate for higher pricing.
We’ve all been there – knowing that we’ve undervalued our service, but less confident about making the switch and properly pricing our service.
But pricing your service shouldn’t be arbitrary. Plus, a fair rate isn’t as subjective as you might think. Still, you may be wondering how to raise your prices as a service provider.
Now, read on for three components of pricing that you should consider when pricing your service. Focusing on these components will give you more confidence to price your service in a way that clearly communicates the value and expertise you bring to the table, produces a profit for your business and ensures that you’re booked to capacity.
3 Components for How to Raise Your Prices as a Service Provider
the Value component
the Profit component
the Capacity component
Component #1 – Value
Let’s talk value.
How does the service you provide solve a pain point for your client?
If there’s one thing busy business owners value, it’s time and expertise. We know that our time is our most precious asset and we also know that it’s best spent in our zone of genius. So, what happens when we reach a problem in an area that is outside of our zone of genius? Then, we hire an expert! And that expert adds value to our lives and businesses.
Ask yourself these questions to determine your value:
What’s your zone of genius?
How do you save your clients and customers time and money (and headache!)?
What would it look like if your clients and customers tried to do it themselves, and how is their pain point better solved by working with you?
Your distinct messaging about your service should communicate the value you add and exactly why your expertise commands the price you’ve set.
Component #2 – Profit
The internet makes it fairly easy to pull up a colleague’s pricing and compare yours against theirs. But, what it isn’t so great at showing you is how well that price covers their expenses, thus determining profitability. Therefore, that’s why it’s best to know your numbers, i.e. what it costs to run your business, because you’ll need that information to determine your own profitability.
So, let’s talk profit.
What does the entire client experience cost you and how does that compare to your price?
Mapping out the client/customer journey, as well as your own internal process, provides a clear picture of the effort it takes to produce results for your clients and customers.
Do you hire subcontractors to help you perform the service?
What’s the cost of your team, and how do they contribute to client/customer delivery?
Do you send gifts?
Does your service require travel to your client or customer?
Do you offer follow up support beyond the initial service?
What’s the cost of overhead in your business?
What’s the market price of your expertise?
Therefore, with all of the costs that go into delivering your service and simply running your business, it’s important that you know every single cost. You need to be able to assess if your current pricing is sufficient to cover all of your expenses and produce a profit, thus extending the life of your business.
Component #3 – Capacity
Are you in high demand? Are you turning away more offers than you can handle? Are you collecting potential clients on a waitlist to work with you when capacity permits? A yes to any of these questions speaks to your client/customer’s need and the demand for your valued service and expertise.
So, let’s talk capacity.
How many hours are required with each project, and over what time period?
How many clients or customers can you reasonably take on at one time over that time period?
In what way do you utilize a team with each project?
What automations can you employ to maximize your availability?
Answering these questions gets you a step closer to determining your capacity (or supply!) over any given time period.
Remember the law of supply and demand applies to your business, too! As you near a balance in your capacity and your client or customer’s need and demand for your service, you’ll reach a sweet spot with your pricing.
I hope that you’ll consider these components when pricing your services and when crafting messaging to communicate the value of your expertise, the ease of your client/customer experience and the demand for your services.
Now that we’ve covered the components of pricing and you have a basis for raising your prices, it’s time to communicate the price increase to your clients.
How to Raise Your Prices as a Service Provider and Communicate Price Increases
Once you’ve evaluated the three components to pricing as a service provider and put in place your new pricing structure, it’s time for a conversation with clients and customers. A straightforward conversation is best. In-person, phone or virtual meetings are great. They allow your client/customer to ask questions and, if needed, to better understand why the increase is necessary. It also gives you the opportunity to detail any changes in work expectations moving forward.
Always follow up any verbal conversations with email communication. It gives the client/customer a point of reference in case they forget pertinent details of your new pricing agreement and can also serve as a starting point for any subsequent questions they may have.
Last, make sure to update any pricing guides, your website and sales platforms to reflect your new pricing.
And, that’s how you successfully raise your prices as a service provider and communicate it to your current and future clients/customers with confidence!