MBA1465 Q&A Wednesday: How often should I raise my rates?

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Hey O welcome to the 100 RMBA show where business gets done every day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the Hundred Dollar mba, a complete business training and community online and today's episode is a Q and a Wednesday episode. On our Q and a Wednesday episodes, I answer a question from one of you, one of our listeners and today's question is from Connie. And Connie asks how often should I raise my rates? Hey Omar, I am a business coach and I haven't raised my rates in years. In fact, I haven't raised my rates since I started as a business coach. My question to you is how often should I raise my rates? Thanks for the question Connie. It's a solid one. No matter what business you have, whether it's a service, a product, raising your prices is something you have to do. Especially because you're going to be continuing to add more value as the years go by. Today's episode we're going to focus on raising your rates as a service based business. But everything I say today applies to a product as well. But as a service provider, you are getting better. You are getting more experience, your skills are getting better. What you offer your clients is getting Better and better in quality and the more value add, your price should also match it. Also, your costs are not going down. Things get more and more expensive as years go by. So in today's episode, I'm going to answer Connie's question. I'll talk about how often you should raise your rates, when you should do it, how you should do it, even how much you should raise your rates. Also, what happens if you don't believe it or not, it gets harder and harder to raise your rates if you don't do it on a regular basis. I'll explain why. We got a lot to cover, so let's get into it. Let's get down to business. So in today's Q and A Wednesday, Connie asks, how often should I raise my rates? I want to start by saying that if you don't regularly raise your rates, it gets harder and harder with every year that goes by. Why? Because at some point you will have to raise your rates because you need to make more money. Your costs are going up as every year goes by, and the nature of your business is that you're going to have to increase your value and increase your rates. So if I wait a few years, let's say, for example, I only raise my rates every four years, the jump I'm going to have to make after four years in terms of price is going to be a lot more dramatic and my customers will feel it more versus me raising the rate a little bit every year. This is going to make it harder for me to raise my rates and also for my customers to swallow those rates. So the more you delay it, the harder it gets. This is why I recommend you should steadily raise your rates every year. Now, if you're in the product business, this is a little different and depends on the market you're in. But if you're in the service business, raising your rates on an annual basis is totally acceptable. Let me give you a prime example. And we don't have to go back 50 years, but if you just go back 10 years and you look at any service business, let's say I'm hiring a developer to create a piece of software for me or to fix something on my website, the average rate of a developer 10 years ago is just about half the rate today. But did these rates just double overnight? No, they increased over time, year after year, and therefore we just feel like today's rate is normal. This is why I highly recommend you just raise your rates like clockwork every year. And I believe 5 to 10% depending on your market. Is a reasonable raise of rates every year. Now, obviously it's a given that you are improving. What you're offering your clients is better than last year. The service is just better. So if my rate was $100 an hour last year and I raised to 105, that's not a huge hike for anybody who's a client of yours or a potential client that hasn't worked with you yet. $100 an hour and $105 an hour lives in the same place in our brain. Not a huge difference, but it makes a difference year over year. You know, if I wait three years and raise my rate from 100 to 120 or 125, instead of doing these increments of 5 to 10%, that's a more drastic raise or price increase. So what we want to do here is instead of having these drastic raises, it's just a steady raise of rate every year. Now, one of the things you could do with your current clients is give them a year of that current rate. So for example, let's say you are at $100 an hour, you have a client and then a year goes by and you're raising rates. You could say, hey, I'm raising rates. It's going to be $105 starting this year. But what I can do is I can honor your hundred dollars for the next year and then we can raise the rate to 105 next year. So you kind of give them a grace period, you give them kind of a discount, you kind of grandfather them in, or it's called a grandfathering discount. And you're basically just delaying the hike for the current customer by one year. But they have a heads up, they know the rate will go up next year. And here's just arbitrary. If you'd like, some people do six months, a six month discount. So after six months we go up to 105. But the point here is that they are aware the rate is going up. They have some sort of leeway or timing where they can say, okay, yep, I got, I know that the rate will go up in six months. And that's fair enough. And this is sort of a crutch for those who are a little bit worried about telling their current customers their rates are going up. And it's a good kind of warning system for new clients. They are unaware of your rates beforehand, most of them. So the new rate will reply the 105. The other reason why I highly recommend you raise your rates on an annual basis like clockwork is that most of us undervalue ourselves. And this forces you to continue to increase your value or increase how much you charge for what you offer. So even if you're new to your service or to your business, and you've been a year in, you're now not new anymore, right? You have a year of experience. You should charge for that year of experience and increase that rate. There's a good chance that your rate was low as it is, because you probably price yourself quite low as a beginner. So again, it forces you to raise your rates and it gets you over that whole imposter syndrome and making sure that you're getting what you're worth. Now, if you have a product, I highly recommend you do a price audit, a review every two years, minimum. Some people do it every year, but I think you have to at least do every two years. Why? Because your costs will increase every year. Every year or two. As a business, the cost of the product itself, the team that you're building around that product, the cost of servicing that product, customer service, customer success, all that gets more and more expensive as you grow your business. Next, if you've been in business for a couple of years, there's a good chance your product has improved, added more features, more benefits. They're getting more out of that product. So the price should go up. And anytime you have a price increase, it's totally fine. A lot of us worry about this. But as long as you communicate this to your customers well in advance and you let them know, hey, this is happening, they will respect you for it. Look at all the products and services you use every day. The chances are they have had a price increase over the last few years. Even tried and true. Netflix. They have increased their prices over the years. A cost of a movie ticket when you go out for the movies, that has increased over the years. Even the cost of a big Mac at McDonald's, you know, the cheapest of the cheap. They increase their prices on a regular basis.

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To answer today's Q and A Wednesday's question from Connie how often should I raise my rates? If you're in the service industry, I highly recommend you automatically raise your rates from 5 to 10% every year, just like clockwork. If you're in the product industry, I say you review every two years. Make sure that that if you've increased the value of the product in terms of adding more features, more benefits, that the price matches. The name of the game in business is to make more profit. But first of all, you gotta make a profit, right? If your costs are increasing, you have to increase your prices. You're not gonna get the money anywhere else. And to be a successful business means to be a profitable one. And the more profitable you are, the more successful you are. And if you're giving your customers value, if they're getting, you know, a return on that investment, whether that's entertainment or productivity, or they're saving time in some way, if they're getting a return, if they're happy with their product, you're doing your business a disservice not to charge what it's worth and charge more so you can be able to do more for your customers. Thank you so much for listening to the $100 MBA show. If you love the show, hit subscribe right now. Make sure you're on a podcast player. Whatever app you like to use to listen to podcasts, just hit subscribe. Whether it's Apple Podcasts, Stitcher, Radio, Spotify, Overcast, or on them all, hit subscribe. That way, when the next episode gets released, you get the episode automatically. Also, by hitting subscribe, you get free access to over 1400 business lessons in our archives. It's the only way to get access to it, so make sure you hit subscribe right now. Also, I'd love to know what you think of the show. Leave us a rating or review on itunes. We read every single one and it also gets you into our weekly random draw called Free Ride Friday. Just listen in on Friday to see if you won't a free ride to one of our programs. Sorry to say. Thanks for showing us love on itunes. Before I go, I want to leave you with this. One of my favorite things about business is the transaction between value and money. We spend money every day as a consumer and the only reason why we spend that money is because we're getting value. Whether it's a cup of coffee, whether we're going out for dinner, whether we're buying a T shirt, or even paying for our mortgage, we got something for our money. Now you're on the other side of that equation. Now. As a business owner, you're going to get some money because you're giving them value. As long as that equation makes sense for your customer and they're getting more value than what they're paying, what they're parting away with in terms of cash and in terms of money, you're in business, you're all good. And they'll continue to pay you money as long as they keep getting value. Thank you so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

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