How to Raise Your Service Prices

If you’re in business, you will need to have a plan for managing your price increases. Most of us feel awkward when it’s time to ask customers for more money, so prepare yourself in advance. Confidence will result from having a reasonable price increase policy that you feel good about. Stay positive by focusing on value, fairness, and showing appreciation for your customers.

Here are a few tips to help you create and implement your price increase policy:

When is it ok to raise my service prices?
The 80% rule
It’s common for beginners to start out at a lower rate because you want to increase clients and professional experience. So when is it time to start raising your fees? The most conservative time is when you’re booked at 80% capacity. Why 80%? Because you will lose some of your clients after the price increase. Don’t let that scare you. It’s just realistic. The 80% rule will help compensate for the inevitable loss of the few that can no longer afford you.

The bottom-line rule
I don’t usually recommend raising prices on regular client services more than once a year. However, if you mistakenly set your beginning prices too low, or your overhead’s increased, you may have to raise fees to make your bottom-line. Proceed with the increase, and take some care with explaining it to your clientele. They’ll usually understand an extra price increase if it’s necessary to meet your bottom line and keep you in business.

How often can I raise my prices?
The annual model
Some business owners do an annual price increase that affects all clients equally. The advantage to this is that your clients know what to expect. Also, bookkeeping is easier because you don’t have different rates for different clients. You can implement this at any time of year, but I think it’s smartest to do it right before your busiest season, so that you capture extra cash flow and don’t feel the loss of anyone that might drop out as a result.

The natural growth model
This style is the most flexible because your prices change as your business changes. Raising prices under this model happens when you’re offering something new or different. Maybe you’ve completed a major training program, or revamped your service menu. In some way, you’re giving more in exchange for the higher fees. With this model, you will raise your prices less often than the annual model, but a significant increase is justified because you’re doing something new.

How much can I raise my prices?
Cost based on bottom-line rule
If you’re raising prices because your overhead has gone up, then you can figure the increase needed with a calculator or spreadsheet. You’ll need to raises them enough to cover the gap, but don’t forget to look ahead and anticipate any new overhead increases! Otherwise, you’ll catch up momentarily, but find yourself in the hole again.

Cost based on annual flat percentage
If you’re raising prices because your following the annual model, then you should be aware of current inflation rates. For example, the government figures for 2000 to 2005 show an annual inflation rate that steadily averages out at 3%. So just to keep up with inflation, you’re going to need to raise prices that much. But what about growth? As you develop professionally, you’re going to want to increase your income. If you’re doing the annual flat percentage style of price increase, I recommend around 10%…more or less depending on your actual financial situation.

How do I structure a price increase?
The uniform plan
Similar to the annual model, the uniform price increase plan treats all people equally. All customers begin paying the new price on the same date. It’s also the easiest to implement with your billing & collection system.

The loyalty plan
You’ll have to make a decision: do you raise your current client’s prices each time you make a price increase? I value long-term relationships, so I personally use this model. The loyalty plan locks in an active client’s price for a certain amount of time, such as when they are in the middle of an ongoing series. When they are done with their series, or if they should drop out mid-stream, their guaranteed price ends. When they start up again, they will be charged the current going-rate for new clients. The loyalty plan is more complicated from a bookkeeping perspective, and is typically only used with higher-priced services that are delivered in a series or program.

The conversion plan
This plan is how you transition from one type of fee/service structure to another, without losing anyone. This is similar to the loyalty plan, in that you continue to provide the same services to your existing customer base for the old price. But give those customers a compelling reason to convert to your new offer. If you state the benefits very clearly, and show your enthusiasm, old clients will usually want to try your new offering even if it costs more. It’s about providing them with a choice, instead of a dilemma. For example, lets say that you are a skin care specialist who used to do mostly recommend basic inexpensive facials. Now you’ve changed your menu to be more advanced and more expensive. To do a conversion plan increase, you should pull those inexpensive basic facials off your menu. Have your clients try the new and improved services! If they really really want the old inexpensive basic facial, you can still provide it for them. But do take it off the menu, and only offer it to people that have clearly said they don’t want to convert to the new service.

How do I tell customers about the price increase?
Advance notice via letter or postcard
One of the risks with announcing a price increase too early is that some of your customers will begin shopping around as soon as you tell them. So you don’t want to lose them any sooner than you have to. However, if your work is highly personal and you know some of your customers won’t be able to afford the new price, it’s kind to give them some advance notice so they can “complete” with you for at least one more treatment or whatever your particular modality requires to transition a client smoothly. This applies more to physcial or mental healthcare services, and is less applicable to beauty services.

Short notice given verbally
In this style, you announce the price increase when the client is booking their next appointment or placing an order. At this time, their motivation to work with you is high and it’s simply a matter of them deciding about price. To me, this is the most fair and straight-forward. Usually this style of short notice is the easiest to implement as well. Very rarely will anyone actually object to the increase. At most, they might have a question or need to say something about how it’s a little difficult for them. Important: do not confuse someone’s needing to verbalize/process a reaction to the price increase, as them having an actual objection. Take a breath, give them a minute to process. They will usually go ahead and book their next appointment afterwards.

No notice or verbal announcement afterwards
It may sound shocking to some of you, but some businesses actually wait until the client has received services and is ready to pay their bill to tell them about the price increase. Sometimes they don’t even mention it, hoping to sneak the price increase past the customer’s awareness. Personally, I don’t like this approach very much as a general strategy. If the price increase is just a dollar or two, then most clients are ok with it. But if you’re bumping prices up significantly (which also increases the gratuity if you accept tips) then I think it’s more respectful to do the short-notice plan. Of course, if a client has not been in for a long time, and they return after a new price increase has been implemented, then you would not be obligated to give them notice. At that point, it’s as if they are a new client again anyway.

Let me assure you that I’ve walked many clients through the process of raising their service fees, and it always goes easier than they imagine. Fear or lack of self-worth is usually at the bottom of undercharging. Sometimes people keep their prices stuck for years. Don’t let your anxieties hold you back. Instead, use the strategies I shared with you to make a plan and implement it. Not only will you be making more money, but when you let go of fear, you’re going to feel a whole lot more confident.

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About the Author

Jaya Savannah - Chief Inspiration Officer. Strategy Coach for Holistic Businesses. Trainer, speaker, and writer. Spiritually aware, yet street smart. Elephant lover.