When things are going really well

In the past couple of weeks I’ve posted articles that talked about the economy and what to do about it. It’s a compelling topic. But there’s another side to the situation and it’s one I want to devote a blog to today: Extreme success. Even in today’s economy, businesses can be successful. Extremely successful. I can easily think of a dozen businesses that have had a record-breaking year this year at a time when the media is announcing one layoff after another, along with doom and gloom of the economy.

I’ve also learned that it’s not related to a single industry or model of business. I’m aware of an autobody chain that has had its best year ever; I know of a couple of consultants and coaches serving different industries who have generated more revenue now than ever before, and even my own businesses have done better than I had forecast when we entered the recession.

An example from a small business owner I know

Recently, a friend of mine (who is among the consultants I mentioned above) talked about how to deal with his growing client base and to-do list. I mentioned that he should think about raising his prices. I was reminded of that conversation when I read this New York Times business blog post: Finally, A Business That Is Too Busy.

In the article, the blogger describes a Chicago pizzeria that is so busy, customers have become upset. The pizzeria is busy because their pizza is good. So, what should they do?

The blogger, Jay Goltz, who owns 5 Chicago-based businesses, gives the same advice to the pizzeria that I gave to my consultant friend: Raise prices.

“But my business can’t handle charging higher prices”

Raising prices is not easy. It’s a delicate situation because your current client base has come to accept the value and return you provide to them at your current price. It’s not something that customers want to hear, but it is a necessity from time to time.

One of the big reasons to raise your price is that you need new customers so you should always be marketing. But if you find that your prices are so attractive that customers are clamoring over you because the value is tremendous, you’ll always end up with too many clients. And yes, it is possible at times to have too many clients.

A possibility that my consultant friend suggested was this: “What if I continue my current rate for my current customers and charge my higher rate for new customers?”. I can see how this type of “grandfather clause” can be attractive, especially since it helps the business owner avoid that difficult email to his clients. But it’s not good for anyone in the long term. Eventually the prices will need to change.

Tips for small businesses to raise their prices

So, how do you raise your prices? Here are some tips I’d suggest:

1.   Make sure that your service and value has been flawless or this could be the excuse many clients have been looking for to leave.

2.   Find a way to add additional value to your existing clients so that your message isn’t just “we’re raising prices” but rather, “we’re increasing value.”

3.   Send out a warning email first, setting a date at which all future projects will be charged at the higher rate. Avoid just making the announcement: “Hey, guess what… it now costs more.”

4.   Make a modest step up in your prices. Unless you’ve suddenly become some kind of internet celebrity, don’t make your price increase too steep or you’ll lose everyone who has worked with you.

5.   Be prepared for a mix of feelings: Great clients will recognize your value and will continue to pay your new rate happily. Good clients will agree to your new price because you’ve proven yourself so far. Poor clients will push back a little, perhaps grumble slightly, and might or might not leave. Bad clients will try to convince you otherwise (in which case, you need to stand your ground and be confident in the value you deliver).

Happy Blogging!

Related posts:

1. The Risks of Unbundled Pricing
2. 5 Things You Need to Do In Your Small Business Right Now
3. Are you in recovery?
4. What’s stopping you?
5. When Business Growth is Bad – Part 2