MBA1685 Q&A Wednesday: How often should I increase my rates?

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Hey oh. Welcome to the $100 MBA Show. Powerful business insights delivered 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 $100 MBA, a complete business training and community online over at 100mba.net and today's episode is a Q and A Wednesday episode. On our Q and A Wednesday episodes we answer a question from one of you, one of our listeners. If you have a question you want to ask, just email me over@omar100mba.net Today's question is from Doug and Doug asks, hey Omar, love the podcast. I run a website development firm. It's just me and my virtual assistant. I've been listening to you for over a year now and I got a question. How often should I increase my rates? I haven't increased my rates in over 18 months. My work is getting better and better and I'm getting more and more clients. I don't want to turn away clients that have been working with me for some time if I increase my rates but at the same time I know I should be earning more. Would love your advice on this topic. Thanks so much Doug. Doug, thanks so much for asking this question. It's really, really important to Reevaluate your pricing, especially if you're in the service industry, especially if you're delivering the service, you're getting better and better and you're delivering a better service. So therefore, your price should reflect that. This is similar to anybody who's in any job. A junior developer is going to get paid less than a senior. An experienced accountant or lawyer or doctor will be more expensive than one that's just out of university or medical school. You get the point. But in today's lesson, we're going to really go deep. We're going to talk about increasing prices, how to do it, how often to do it, and how much of an increase should you make. We got a lot to cover, so let's get into it. Let's get down to business. So Doug asks on Q and A Wednesday, how often should I increase my rates? Last time Doug increased his rates, it was a little over 18 months ago. So it's, in my opinion, time to do so. I actually think the maximum amount of time you should wait before you increase prices is 18 months. Actually. I think you're just at that point where you really, really, really should be increasing prices, especially if you're doing regular work this whole time. The value you're giving your customers day in and day out, project after project, is getting better and better every day, and therefore you should be charging more for that increased value. I first want to address a little bit of Doug's apprehension of raising his prices. He doesn't want to turn away his existing customers. He doesn't want to discourage them from working with him again. I want to tell you, from a customer's point of view, who hires a lot of freelancers, that hires a lot of employees. If I work with somebody who delivers, who I come back and work with again and again, my biggest concern is not really them increasing the prices. My biggest concern is that they're not going to be able to do the work. I'm going to have to find somebody else. That's really my worry. Paying a little bit more in order to get the same talent, to get the consistency, to get what I expect is a very, very small price to pay. Many people don't realize that from a company's point of view, from a consumer point of view, consistency is so important. Knowing what you're going to get, having expectations and having them fulfilled, this is incredibly valuable to them. So they don't want to let that go. And if you say, hey, my prices have gone up, my rate has gone up, it's not out of this world, you know, this is normal. Anybody who delivers a service or creates any kind of content, you know, a musician makes more money today than they did three years ago because they've gotten better as a musician or an athlete or, or any kind of professional. Like I mentioned a doctor, lawyer, a service provider, a plumber. And again, from my perspective, as somebody who's hiring somebody to do a service, I'm okay with paying more if I'm getting good work done. I actually found that higher rates are not discouraging. To me, they're actually things I look out for. I actually want somebody who charges a bit more. For example, you're a website developer. Somebody comes to me and says, hey, you know, I charge $80 an hour. You know, that might seem expensive, but that person who charges $80 an hour is experienced, they know what they're doing and they're probably going to be able to complete the project faster, more efficiently and more accurately than somebody who's charging maybe half that $40 an hour. That person is going to take a lot longer, is going to have a lot more roadblocks, and may not be able to do the project as well as somebody who's charging much more. So sometimes you actually save money in the long run. And serious buyers who aren't so price sensitive are the kind of customers you want to attract. So in the long run, increasing your prices are really going to help you increasing your rates. So minimum, increase your prices every 18 months. You can even do it every year. But that's kind of my recommendation between a year and 18 months. Now, how to do this? Well, it's very simple. The next time you engage with a customer, you can just mention it, hey, by the way, last time this was my rate. Since then I've increased my rate. It's currently this. So for this project, it's going to cost X amount of money and stop talking or stop writing. A lot of people, they go on and on. Is that okay with you? I hope that's okay. Once you say, is that okay with you? You ask a question, is that okay? That is opening up a negotiation. Because they can say, well, actually, you know, but if you just say as a fact, this is my rate now, this is how much it costs now. And there's no question at the end of it, people are going to be like, okay, that's what I got to do now. Many service providers have done a two type pricing strategy that I think is really good. What they do is they actually increase their prices for new customers at one rate and recurring customers or returning customers at another rate. So, for example, they'll take their rate and they'll increase it by 20%. That's the new price for new customers. So people that don't know any better, you know, they'll know your first price. That's the price they know. And for returning customers, it's 15%. And you can mention this to your returning customer. You can say, hey, my new prices are 20% higher. My new rate is such and such, but I can give you a return customer discount. So it will be so and so it will be only 15% more. This shows that you respect loyalty and you appreciate their business. And that, hey, you're giving them a little something special. How much should you increase it? Well, it depends on how often you increase your rates. Let's say, for example, you're increasing your rates every year. I would say no less than 5% and no more than 20%. Any more than 20%, 25, 30, it becomes a dramatic jump. This is why it's more advisable to increase your prices every year rather than waiting every two or three years, because then the jumps are going to be quite high. But even a 15 or 20% increase may not seem too high, but will make a big difference for you for all your clients. So say, for example, your hour rate is $50. A 20% increase is only going up to $60. But across all your hours, across all your customers, it makes a significant difference. Now, one of the things I recommend is when you're delivering the change of rate to a returning customer, you can offer them to lock in a longer term package, for example, to have you on retainer. So say, for example, you say, hey, my hourly rate is now $100. I usually increase my rates every, you know, 12 to 18 months. But if you'd like, you can lock in this rate for the next two years if you want to. But you'll need to commit to a certain amount of hours on retainer every month. So you might say, I need to have 10 hours on retainer every month. That means $1,000 every month. That means that's $24,000 for the two years. And this can just be a retainer for any kind of work that they need to do, maintenance work, update work, and then anything outside the retaining hours. You can charge them hourly at the current rate. And people that like to work with you would like to lock in a great rate that they can have and have predictable pricing for the next couple years. 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To answer Doug's question on Q and A Wednesday, how often should I raise my rates? Well, like I said, you shouldn't wait more than 18 months. The sweet spot is anything between every 12 and 18 months and you can increase it as low as 5% up to 20%. And as long as you consistently do this every 12 to 18 months, you'll continue to be able to charge more and earn more based on your increased value. Great question Doug. Thanks so much for asking it here on Q and A Wednesday. If you have a question you want to ask, just email me over at omar100mba.net and we'll answer it right here on Q and A Wednesday. Thanks so much for listening to the $100 MBA show. If you love what you hear, share this show with your friends on social media, share a link to it, or even just take a screenshot and tell people about the hundred dollar NBA show and why I love it so much. Before I go, I want to leave you with this Many people often think price is a bigger factor than it actually is. You'll be surprised. Many people are willing to pay more money if they're going to get what they want, if they're going to get the result they're and an increase may be an increment of price that is really not going to make a huge difference between going with you or going with your competitor. They really want to just know, will you give me what I'm expecting? So sell them on the value. Sell them on what you can deliver. Show them what you've done in the past. The more value you convey, no matter what your price is, the more that price becomes a bargain. Thanks so much for listening. I will check you in tomorrow's episode. I'll see you then. Take care.

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