354. Discover the Secrets to Successfully Increase Prices for Your Business (Refreshed Episode)

Welcome to episode 354 of the Brainy Business Understanding the Psychology of why People Buy. Today's episode is all about how to raise your prices. Ready? Let's get started. You are listening to the Brainy Business Podcast where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brain friendly. Now, here's your host, Melina Palmer. Hello. Hello everyone. My name is Melina Palmer and I want to welcome you to the Brainy Business Podcast. Today's episode is about something I know people talk and think about a lot at the beginning of the year. How to raise your prices. While this isn't the only time of year you can or should raise your prices, it does feel like the easiest time for a lot of people. That's the fresh start effect for you. So it felt like the right time to refresh this one. While I'm also doing a series of sorts about pricing. And why am I doing that, you may ask? Well, it's because my third book, the Truth About Pricing, how to Apply Behavioral Economics so Customers Buy, comes out just one week from when this episode airs. Hooray. I have been working on this book for such a long time and as you will hear in next week's refreshed episode, which was also originally called the Truth About Pricing, that one was the fifth episode of the podcast ever, so it first aired in July of 2018. I have been talking about and helping people around the world with pricing using behavioral economics and my it's not about the cookie framework for over five and a half years now. It's really amazing to look back and reflect, but that's what this coming Friday's episode is about. When I'm going to give you a behind the scenes look at the new book, what you can expect, what's new and different and exciting and more. Today's episode, which originally aired at the end of 2019, is part of a three week series dedicated to pricing in honor of the new book. We kicked that off last week, including Friday's conversation with Joe Evershed and Dr. Gareth Harvey about a fun research project we did to finalize the COVID of the book. If you haven't heard that one yet, do go back and listen. It's my top recommended next episode for you in the Show Notes. Speaking of those show notes, don't forget that inside them you're going to find links for everything, including past episodes, books and articles all waiting for you. Those shownotes are found within the app you're listening to and@the brainybusiness.com 354 alright, let's talk about how to raise your prices. First off is the overarching question you might have of who this applies to. As with all of my work, the advice given is for any type of business, whether you sell physical products or services. I'll make some notes when things vary, but in general the concepts apply regardless of industry or item. Therefore, throughout the episode you might hear me use the terms prices and rates interchangeably. Know that when I say rate it doesn't mean it's only applicable to a service based business. The concept holds and I'm using multiple terms to keep from being repetitive and you having to hear the word pricing 800 times in the episode. But if there's something that applies specifically to an industry or a type of business, I will point those out in the episode and there are a couple of those that you'll hear throughout our conversation today. All right, the next point is one that may not surprise you, but needs to be said. If you wonder if you could or can increase your prices or raise your rates, the answer is probably yes. As you've heard me say many times before, pricing is not about price. So all the things that happen in advance of the price matter more than the price itself. So if you can't raise your rates, the block is often internal. It might be that in your current structure you can't raise your prices and maybe it doesn't fit your model and that's okay with any decision. It's important to consider your own brand and what you're about. Think back to the analysis I did on Costco a few months ago, which is of course linked in the show Notes if you haven't heard it yet, but their model is built on making their prices as low as possible. They're always looking for ways to save their members money and how they can get the price down on every single item. They have a lot of loss leaders still, like the hot dog meal deal and rotisserie chickens, but they make it up in volume and experience. Walmart is also about low prices and volume, but it doesn't mean they can't increase the margins on particular items and it doesn't mean that they can't showcase more profitable things. When you're working in massive volumes, small changes that are not going to be noticed much by consumers can have a huge impact on the bottom line. Another way to look at this is the difference between profitability and prices and understand what your costs are and how it all ties into the Baseline question of why you want to increase the price of your offering. What are you trying to accomplish and is there another way to do it without impacting your customers and or where can you implement tweaks that benefit you and the customer doesn't necessarily notice? I fly a lot and many airlines have changed their models to charge for things that used to be free, like choosing a seat in advance or using the overhead bins. These all have an impact felt by customers. It doesn't mean they're always wrong, but. But what about hidden costs that can be removed to increase profit without changing the pricing structure? About 30 years ago, American Airlines famously saved $40,000 a year by removing one olive from every salad in first class. Who would notice one olive? Probably nobody. Who would notice an extra $40,000 to the bottom line? A lot of people. Before you go through the process of raising your prices, it's important to note that you definitely could do it. No matter your business, product, service or industry, what the competition is doing, or what you've always done, you can always change your prices. So lift that burden from yourself and then step into the next phase. Should you raise your prices and what are you trying to accomplish with this decision? The reason you're wanting to raise the price is important to understand as you tackle the fears you have about raising prices. There's always a fear, a mindset block that's keeping you stuck in current prices. And that's why my courses are set up to start with mindset before we roll into pricing. Let me give you a couple examples of this. In the real world, someone in the service industry may want to raise their prices because they're too busy. If you're overbooked and stressed, working way too many hours and you need to cut back on the schedule, then it's good to raise prices because it will naturally reduce the number of people willing to pay at the new rate. However, the brain will try to scare you and one of the fears that often comes up in this price raising scenario is what if I lose all my clients? Or what if people leave? In this case, it's okay to lose people because you're trying to reduce your workload. It's unlikely to be everyone who goes, but it might be if you're making a significant shift in style or things like that. But if you're making an increase of, say, 25% on your hourly rate, if you're a service based provider, you may lose some people, but you likely will not lose everyone. And the increase in revenue will make up for the people who leave and you now can settle into a work less make the same or more scenario. As a side note, this tactic should also be coupled with a rigid schedule that doesn't allow for exceptions to be made unless it's on a very, very rare basis. Say you want to stop working at 5 every night instead of 9pm you can't show yourself as available or keep an I can always be available mindset. The scarcity helps validate the higher price and if you are in demand, you have an opportunity to charge that premium price. Another example of a reason to raise your prices is if you aren't making enough profit. This could be on products or services, of course, and should also be known before you build out the plan. While you always can increase prices, it's a bit of a hassle to do so and not something you want to be doing all the time if you can avoid it. So instead of constant tinkering, it's best to sit down and understand the whole strategy behind your pricing before you make the adjustment so you can let them be for a while while proactively revisiting again later. Yes, this is something I work with clients on, and if you're interested in working with me to build out the strategy with you, I would love to work with you. Email melinathebrainybusiness.com to discuss that opportunity further. If you aren't making enough per transaction or you're switching to a new demographic, you want to focus on serving that often you'll be a fit for less people, but it also means you'll be more clear and often appeal to the right people in a way they notice. When raising your prices, know that nothing is for everyone and it's okay to not be a fit for someone anymore. This is where you can practice the bless and release. Even if this person was your first client or customer ever and they're a friend or a family member or a or whatever, appreciate what they did for you and potentially take the step to thank them personally and then move forward. That being said, don't assume they can't afford to pay you now or tell them they should not work with you anymore unless it's a really, really really extreme case. It's their job to decide if they want to buy what you're selling and if you make a list of all the people who you think will leave and treat them differently or send them sorry, we'll miss you email, you're talking them out of a sale they might have otherwise made. Know that people actually get more value out of things they pay more for. This is something I've explained on the podcast before, but people say their pain is relieved better by a pill they're told costs $2 and 50 cents over one they're told is only 10 cents even when they're both a placebo. Think about jeans as an example. Not everyone will pay 500 for jeans I don't and they don't need because they have enough people buying at the high price that they only need a few. But I treat my $100 jeans better than the ones I used to buy that were only $15. This again is about brand and quality and messaging, also known as framing, which matters more than the price itself. I believe the $100 jeans I get from Nordstrom are better than the ones I used to buy from Old Navy. Some of that is because of actual experience holes and things I used to experience in the cheaper pair. But do I really know about the exact quality and how much better one is than the other? Or how much more money they pay for the materials than the less expensive ones? Nope. Do I care? Nope. Which leads to the next point. Now that you know you want to raise your prices and why you're raising your prices, don't over explain and draw attention to the fact that you're raising your prices. This is a key spot where people lose the deal in their price increase. Have you ever gotten the email or seen the sign or message from someone, maybe your hair salon or local pizza shop, that says something like Dear customer? For five years we've taken on increasing costs from our vendors and absorbed those because it was very important to us to keep the price to you the same. But that means our value value has been going down and now it's difficult for us to pay our employees and our rent so we can no longer burden this ourselves. And that's why we're raising our prices. You know we don't want to, and we know you might not be happy at first, but we promise to be even better and more amazing and earn your trust back. That letter probably went on even longer. I've seen these as full pages or longer and they just never seem to end. When you heard me reading out that potential letter, how did it make you feel? Did you feel good about the business and what they've been doing? Do you feel like they're in a good place? Do you appreciate all the price increases they have burdened themselves with over the years or did your mind go somewhere else? What it likely did is really make you realize the price is going up and say, you know, maybe I should look to see if there's another provider to make sure I'm getting the best deal. Or maybe you thought, yikes, I didn't realize things are so bad at Joe's. I should look for a backup pizza place just in case they go out of business. Apologies are not needed when you increase your prices. If you do legitimately need to apologize, you probably shouldn't be raising the price. Do have an explanation ready in case anyone asks. Still not apologizing. But know that most people will not talk to you about it. They'll either pay the new price or move on. And that's okay because you already know that's a consequence of changing your price and you've accepted this. It's part of growth. Instead of having the long drawn out explanation, sometimes you can just change the price and no one will bat an eye. Let's use the pizza place as an example. If your pizzas have been $12 for the last five years and now they're 13, most people will not complain or even ask about it or possibly even notice. If you were to go up to $20, maybe you would have some questions. But there's a reasonable increase where a lot of people don't remember the exact price they've been paying. Drawing attention to it and making a big deal about it. Draws attention to it and makes a big deal about it. We get so close to our own pricing, we worry that everyone else knows and focuses on everything we've been doing, that they know the trends and all those extra details, but they don't. Prices fluctuate and consumers accept that more often than not. Think about buying soda. How much does soda cost? The answer, of course, is, is that it completely depends. Even if you're buying regular Coke all in the same day in the same town, it's not going to be the same price everywhere. Even in one grocery store, there are different bottle sizes and cans and fountain drinks and combinations that are all different. And then if you go to a movie, it will be more expensive than if you were to buy a different fountain drink at 7:11 or McDonald's. Honestly, how much does soda cost? Who knows? You know an approximate and your willingness to pay changes based on the context. This again gets into how pricing is never about price. Why do you pay more for soda at the movies than at the grocery store? Why are you willing to pay different amounts for the same exact thing in different locations? How does this same principle apply to your customers? When I took the current mindset course group through Question Storming Getting past mindset blocks about raising prices is where they chose to focus on our Zoom training. Some of the questions they generated in that process have been addressed in this episode already, like what if I lose my current customers? And will people be upset if the price changes? One of the questions I encouraged them to think through was this one what would happen if I charged 10 times more? And another version of that same question is what would make people happy to pay 10 times more for this? Asking questions like that can help you step out of your own knowledge of what you're offering and look at the value. Is there a competitor that charges more than you? How would you disrupt your own space? Where could you add more value to your customers so they're happy to pay the higher price? These slightly shifted questions make a huge difference in the way you approach the project and are a reason I'm a big proponent of doing question storming with all my clients. Or an updated version where I ask a lot of questions to help get us to new and different places than they have ever been able to get to on their own. Getting back to the price change and increase, I gave the pizza place example and the soda example and there are times when people know exactly how much you charge and will notice if the price changes. For example, if you've had your campaigns all focused around price and really, really made a big deal about the amount, say the $5 footlong from Subway or the $5 hot and ready pizzas from Little Caesars, when those go up in price, people will notice and they will probably tell you about it. If you're one of those two companies, you have songs about it and you've been touting this price for years, which is a lesson about hanging your hat on price for all of us. But for most businesses, for most companies and offerings, it's less of an issue and people aren't as attentive to price as we think they might be. If you do have a situation with existing customers who are either in a contract or or you believe are used to buying at a specific price and will notice a difference. My biggest tip is to look at your current customers and potential customers in two different segments. In the case of a service based business, you can raise the price for all new clients immediately and have a phased approach for current ones down the line. Let's say you're a graphic designer and you charge $85 an hour but want to switch to 125 to phase that old price out. You would start charging the new rate immediately to any new client, anyone who calls or reaches out. That's the price. And if you have pricing listed on your website or anything, update it. You should then set a date where the new pricing will go into effect for all existing clients, which could be based on existing contracts or things like that. That could be three months out or six months out or as projects roll off. But this slight gap is useful when you talk about the transition because now you already have people paying the new price that you can kind of lean back, feel confident in to help you to feel good about this, which I'll talk about a lot more toward the end of the episode so let's say on July 1st you changed your pricing structure for all new clients to be 125 and have decided that by January 1st everyone will be on the new pricing in October or November. It's time to let the existing clients know the price will be going up at the first of the year. You could say something like because of our relationship, I'll honor the old price for any projects completed before year end. Or maybe you want to have a phased amount of time at a tiered pricing they're grandfathered into if they commit before the end of the year. In that case you could say something like for any hours you want to Pre purchase for 2020 they'll be at $100 per hour. If the contract is signed before the end of the year, that allows you to move up from your $85 an hour and get some pre commitments. Now it really depends on again your strategy, why you're raising the rates, being thoughtful and knowing how this will impact your overall brand and strategy. Perhaps this is a great opportunity to let some problem clients go, but if there were one or two that you would at a discounted but still higher rate because you love working on their projects, you could move them in at the hundred dollar rate and know that the problem clients maybe aren't offered that same discount opportunity. Again, make it part of a larger plan and all factored into the overall pricing and profitability of the business as a whole. It's also important to remember that any work you do at the discounted rate is time you don't have to give to new clients at the real rate. Is that past client so great that they make up for the extra 25% lost on money coming in the door? Maybe, but maybe not. Regardless, you need to think through what you will do when you communicate the new pricing to the client. If they ask for a discount or threaten to leave, what's your response going to be? In many cases it should be. I completely understand. How can I help you with that transition? Be kind, be helpful, but know that you came into this knowing it wouldn't be a fit for everyone. Maybe you can have a list of other designers in the lower range you can recommend they call instead. There will always be someone who charges less or some option that would be cheaper and likely others that are more expensive than you. But neither of those scenarios means your price is wrong. It's important to look at the competition and understand what others charge, but don't let it dominate your mental space. If you are more expensive, why is it worth it to the customer? Where's the value for them? Price integrity is important and a real consideration. Now that your prices are higher for all those new people, can you justify the lower rate for someone else? How would Susie New Business feel if she learned others were getting a 25% discount? Would she threaten to leave if you don't give her the lower rate? Maybe, maybe not. The point here is to have a plan. And getting back to the earlier statement that when you raise your rates, some people will not want to pay them. And that's okay. They aren't your people anymore and there's nothing wrong with that. When you have a plan, it's easier to live in peace with that. And price integrity is really valuable across a business. I just can't recommend it highly enough. All right, that was a service example. Now for a product based one, in many ways it's actually easier for product businesses to raise their prices. You have hard costs from people you buy materials from that might be changing all the time, and customers understand that prices can fluctuate. And remembering back to the soda example, it may seem like an isolated situation, but it's not. You all know I love Starbucks and I buy drinks there enough to know that a Chai is not the same price at every location. It varies by up to 50 cents per transaction depending on where I buy them. In a hotel or at an airport in different cities or states. There's not a constant grande Chai price. How much did you spend on milk the last time you bought it and how does that compare to the time before six months ago? Most of us don't remember, you know, an approximate cost and are okay with paying it. And there's a point where you might say, whoa, not today, I guess. Or consider anything else in the grocery store for that matter. How much is a chicken breast or ground beef? Boxes of cereal? Green peppers, bananas? If we all knew the exact prices of everything, the Price is Right wouldn't have been running for almost 50 years now. So again, when you think people are so focused on the price and exactly what it is compared to what you charged for it last time, that's just not necessarily the case. And a new transaction is often a new transaction, a blank slate where small fluctuations differences aren't going to make as big of a difference as you think they might. What's more important and one of the things I always advise clients on when we're talking about pricing pricing strategy is context of where people are going to see the price. If you offer a service, people may be shopping competitors, but they may also be deciding what level to work with you on. So in hiring me for pricing strategy work, when someone's looking to work with me, they have listened to the podcast or heard me speak and typically know they want to work with me. And they can segment out to whether they want to hire me directly to work with them one on one or if they want to take a course. They might look at competitors, but it's less of a concern for me than say someone selling on Amazon or with products on a shelf. When you have a product that is going to be on a shelf, you need to know and understand what is around the item. What's the context of the competition around you and how does that tie in with the mindset and overall shopping experience of the customer? Let's say your company sells three types of dog food and all you think about is how your premium compares to your regular or your bargain and price it that way. But they aren't put together on the shelf. Your premium is next to the competition's premium or your premium is placed next to their regular because they're both made with beef and all the others are chicken based. If you don't consider the context of the the price and what people will be comparing to you can be setting yourself up to fail. Similarly, if you're on Amazon or Etsy, you want to understand the overall experience someone goes through when searching for you. What do they see first? Where do you come up in the price list, what else is around you and how does your price change impact the other sellers? If it becomes a price reduction war, someone will always sell for less. If you're going to make your prices higher than the competition, consider search terms for your ideal client. Why is yours better? How can you make the value as clear as possible? So you're in a category of one or two and the competitors are just showing why yours is better quality or value or whatever else you're building your platform on. Understanding what competitors charge is important, but it isn't everything. Again, people pay a lot for things that look just like something someone else paid a lot less for I was recently looking to buy some black leggings back at Nordstrom again online, and they have about a zillion pairs of leggings on their website. By the way, many of them are under a hundred dollars, some were around 30 or $40, and a few that popped up in there were 500 or $1,000 for plain black stretchy pants. I don't know what the brand was or how they compare in person, but online they're pretty much the same in my mind. And I'm not in the market for $1,000 leggings, but someone might be. And remember what I've talked about on anchoring and adjustment? High anchors like this help make everything else look more affordable, so having something that's even higher than what most people will pay is a valid strategy to make the real price seem more reasonable. Comparisons and context matter we're getting close to the end of the episode here, and I have two last important tips for you when looking at raising your prices. First, everyone hates raising prices. It makes us feel uncomfortable and a little sick. And it's scary. I wrote about this in an article from my column on Inc. Which is linked for you in the Show Notes atthebrainybusiness.com 77. You'll also find a link there for an article I wrote about the font size on price tags. I'm going to talk here about the way that you talk about these verbally and when you're writing things out in an email or a letter on a website, as I've already been saying through the episode. But something as simple as the way you present the price on a sticker, the size of the font could impact your sales by up to 28%. And I've shared again that article from my column and talking about that study so you can check that out. But all those little things really, really matter and something that you aren't even aware of could be impacting the likelihood of people to pay a higher price, even when they can't tell you when you didn't know. All these little tidbits can make a really big difference. So definitely check out that article, especially if you have a physical product, and think about the way that you are putting numbers on your price tags on your website or in a brochure. So even for physical products, that font size thing really comes into play. So now I'm going to get back to these last two tips. I had forgotten that I wanted to talk about that episode. So just because it's scary and maybe makes you feel a little bit sick to raise your price doesn't mean it's wrong. Again, this is so important. I just. I have to say it again. Just because it's scares you doesn't mean the new price is wrong. Similarly, just because you wouldn't pay for it at that price doesn't mean it's wrong. You know all the details and ins and outs of the offering, so you likely wouldn't need to pay for what you're selling at the price you're charging. But you're also likely not your ideal customer. If marketing comes easy to you, you will undervalue how difficult this is for other people to do. Trust me, I've done this. If you're super good at technology, you'll underrate just how painful it is for others to do the thing you can do in five minutes. It isn't about you, it's about the customer and what value you provide for them, which is done through proper strategy and framing as you set and raise prices. And because it's scary and might make you a little sick to your stomach to say the new price at first, especially if you're selling to people in person and over the phone and have to say the number out loud, you need to role play. You need to say this new price so many times that your brain automatically thinks of the new price as the right number. And you can say it as if you're saying the weather or time of day. It needs to be so easy that you don't hesitate when you're quoting the price to someone, not just in your head out loud. Practice with a close friend or a family member. Say it 50 times every morning and 50 again at night. Visualize what it's like with people paying you that much for your service or product. What do they say about it? What does it look like? If it's easy, what's the experience like? If price is a non issue, this will come up every time you raise your prices or change something, which is why you want to put in the workup process front to make sure the strategy is solid before you raise your prices so you don't have to struggle with this all the time. And the reason role playing matters is because confidence is the ultimate important thing. Whenever you're talking about pricing, whether the numbers have recently changed or not, just as a dog can smell fear. Your potential customer can tell if there's something off with your pitch. If you hesitate or waver, their subconscious will pick up on it. They might not be able to tell you why, but they know. And if you aren't careful, you could be throwing yourself into a vicious cycle where you validate your own fear about the price being too high and think you can't charge more when you actually could. If you had the mindset and strategy properly aligned. And if this is you, if you've struggled with this in the past, I'm going to be talking about that Bogo sale on Courses from the Brainy Business in just a minute. Minute. It's absolutely a fit for you and it's such a great deal right now in any case for everyone. When you're talking about pricing, a confident, friendly tone and ask for the sale every time. I've given the example before of when I worked in a call center for an airline and they trained us to state the price in this way, even if I know the price for the next flight is considerably less if they don't ask, it may not be important. For many business travelers, the time of the flight matters more than the cost of the flight. It wasn't my job to write the story for them. They're welcome to ask for options and I'll provide them happily as well if the price is too high, and that's a factor. But again, creating that concern was not part of my job description. When someone states their price with confidence, your brain makes the connection that others pay that price and you're one of many, which triggers hurting and validates the process further. If you hesitate or lack confidence, it does the opposite. In summary, if you want to raise your prices, you absolutely can. You always can. And it's best to have a plan to make sure you're doing it for the right reasons and you know how you will react. If you do get questions or pushback, and if you need to take a few steps from further back and update your branding or other value proposition statements, target markets, things like that. Understand the context of what is around the pricing and always, always, always communicate with confidence, even if the new price makes you scared. The first sale at a new price point is always the hardest, but once you get that one, your brain knows people will pay that price. So it gets a lot easier if you role play going through the process and having someone say yes and go through the whole rigmarole, you're triggering mirror neurons in your own brain and making it easier to communicate in the moment when you're actually going through the process. So I ask again, how do you raise your prices? You get over your own mindset blocks, take a breath and jump in. So what got your brain buzzing as you learned about raising your prices today? For me, I love helping people with pricing strategy, whether it's raising their prices, setting new prices, getting comfortable with selling, thinking about how to best present your offers so your best offer is the most likely to be chosen and more. I like it so much that as you now know, I wrote a book about it, the Truth About Pricing, which is going to be everywhere. Books are sold very soon, really digs in on this and gives you everything you need to properly price and sell whatever you want to feature in your business in a way that responsibly includes psychology and behavioral economics. So they're working for you and not against you. Pricing strategy is a big theme and area of focus here at the Brainy Business. If you want help with pricing in your own business, of course I do consulting on that and would love to work with you. I also speak about pricing strategy at conferences or via corporate trainings, and there are lots of other episodes on this topic as well. Links for everything are waiting for you in the show notes for this episode. If you want to see about working together, whether it's consulting projects or speaking, please Visit the Brainy Business.com to learn more. You can also email me melinathebrainybusiness.com to start that conversation. I can't wait to hear from you before we close out the show. I want to be sure you know that there are links for everything in the show notes, including related past episodes, books like my newest one, the Truth About Pricing, a timestamped summary of the episode, and more. It's all waiting for you in the app you're listening to and@the brainybusiness.com 3. And just like that, episode 354 on raising your prices is done. Join me Friday for a brand new episode with a behind the scenes sneak peek of my brand new book the Truth About Pricing how to Apply Behavioral Economics so customers buy. It's going to be a lot of fun. You don't want to miss it. Until then, thank you. Thanks again for listening and learning with me and remember to be thoughtful. Thank you for listening to the Brainy Business podcast. Molina offers virtual strategy sessions, workshops and other services to help businesses be more brain friendly. For more free resources, visit thebrainybusiness.com.