July is the traditional time to raise prices as we enter a new financial year Down Under.
This year it has never been so important, as costs go spiralling upwards for salaries, mortgage payments, insurance, energy etc
That’s why I raised an eyebrow at recent research suggesting that some Professional Services firms have still NOT raised prices since the outbreak of Covid!
Remember, raising your prices is the fastest and cheapest way to raise profits. Based on average margins in firms, a 10% price uplift can enable you to lose up to a quarter of your turnover yet return the same cash profit to the business. Conversely, those firms discounting by 10% to win the work, must find a 50% uplift in volume to gain the same cash result. That’s nuts!
In layman’s terms, have a 10% increase and take Friday off or discount by 10% and work Saturday, Sunday and half of Monday to deliver the same profit result. I know which one appeals to me.
The net effect is less activity, less output, greater profits. Better than being busier with less profit per transaction.
If you’re putting in proposals for projects over two, three years and beyond it is critical you have the opportunity to raise prices as you progress over time. If not, by Year 3 you might be doing an awful lot of unprofitable work.
Your pricing policy demands communication of your benefits to clients so think where you want to position yourself in the marketplace. All markets around the world are polarising around top and bottom, so where do you see yourself fit? Many firms sit in the grey, woolly, nebulous middle ground where the only differentiator is price. This is dangerous and I strongly suggest it is to be avoided.
In another survey, only 14% of respondents said “price” was an important determining factor in purchasing decisions. Looking at it another way, it means of every 100 clients who come into contact with your firm, 86 of them are not concerned about how much money you’re asking. Price is only an issue when you haven’t given your prospects a reason to pay what you’re asking.
The road to bankruptcy is paved with people who tried to buy market share by cutting prices. Always try and avoid a price war as you are unlikely to be the winner. There is always someone who is prepared to go lower than you.
You need to be clear about your intentions to clients so if you haven’t already done this, consider a letter/email like the following example;
Dear Client
I'm writing to let you know that our prices will be increasing by 10% with effect from 1st July 2023.
As you know, we value your business and have enjoyed working with you and achieved some great results along the way.
Like any business though, our own operating costs do increase over time and whist we have absorbed a number of these without passing them onto clients in recent years, we are now required to make a change.
To maintain the level of service you're accustomed to, this modest increase is necessary, so we wanted to communicate this to you in good time. We're confident that our prices remain competitive within our sector for the quality of the service that we provide and as always, we're focused on the results we provide to clients.
I'd like to remind you of the results we provide to you on a regular basis, which includes:
Service 1 Result
Service 2 Result
Service 3 Result
Thanks again for your continuing support, and please contact me if you have any questions about your new pricing structure.
Yours Professionally
Alistair
If you asked the near 250 firms I have worked with over the past 14 years the most tangible benefit of my working with them, I would say that the majority would point to having the confidence to raise prices (and therefore profits) would be at the top of their list. Not one has ever come back and questioned the action.
Even if competition prevents you from implementation on all areas of your business, seek out the opportunities where you can make changes to existing and potential future clients alike. You will not regret it.
Further reading – Experts Don’t charge low fees
- How you can afford to take Friday off by avoiding discounting