“Raise your prices!”
This is one of those pieces of advice that everyone likes to give.
“I raised my prices and soon I had three times as much work!”
And that’s the type of anecdote that usually accompanies it.
But raising prices isn’t so easy.
There are lots and LOTS of resources on pricing out there. From how to price, to why price, from buyer psychology to maximizing returns. You can google that stuff on your own time if that’s your specific problem.
But from what I’ve seen, most people don’t have a problem with pricing, per se. As business owners, they’re familiar with the concept of capitalism, and they know that they deserve fair compensation for their efforts.
They just have a problem with justifying the pricing with a reason beyond “I’m worth it.” This is the tack that a lot of articles on the subject take. “Raise your prices because you’re awesome and because people can afford to pay you more, dammit. What you do is valuable.” For most people, this is a subjective assessment and one your client does not automatically share.
Worse, when these articles try to persuade you to raise your prices, they make the assumption that if you could only believe in yourself, you’d be able to raise your prices and never look back. They assume that people are wrestling with a sense of inadequacy that prevents them them from charging “what they’re worth.”
Having had this discussion with just about every client I’ve ever had, I contend that the issue is less a sense of personal inadequacy and more a sense of not being in an objectively defensible position.
Positioning is crucial for comfort in pricing.
It’s not that we don’t think we should earn $X an hour. It’s that asking someone to pay you $X/hr is a complicated endeavor. (I know that most people don’t charge a flat hourly rate. But, most people do have an hourly rate that they aim for when pricing their products and services.)
We’re social animals, so beyond the simple “Are you kidding me?” reaction, we also fear that pricing ourselves too high will damage our standing in the group. Now, like it or not, we’re all members of a group. There’s your industry. There’s the group of business owners who you follow and who follow you. And there’s your customers, of course. And like it or not, you care what these people think about you. We’re social animals. We can’t help it.
So even when there are ample justifications to raise the price, many people balk. It’s a complex job to renegotiate this type of social contract, and handled poorly, can have significant negative impacts. Since few people consider themselves to be good negotiators, they resist changing things because they’re cognizant of the damage that might be done to their business and their relationships if they screw it up.
But– everyone is telling them to raise their prices. And they know they should. So how does this play out in real life?
They say they’ll raise the prices — in 6 months.
Or, they’ll raise the price on paper, but then throw in a bunch of time-consuming freebies.
Or, they’ll raise the price– but then give all their existing clients the old rate. And anyone those clients send. And if a new client seems like someone they’d like to work with? They get the old rate, too. So who’s paying the new rate? Nobody.
(Well, that’s not true. Sometimes, people quote their higher rate to a client they don’t want to work with, and then they’re chagrined when that client doesn’t bat an eye and takes them up on their offer.)
As much as I beat up on the “just improve your self esteem” crowd, I don’t want to imply that most people are exactly comfortable with saying, “I’m worth more.” I’m only saying that creating a defensible marketing position will do more to enhance their comfort than affirmations about their worthiness.
That’s why I say that positioning is crucial for comfort in pricing. If you don’t feel like the value proposition of what you’re selling is obvious to your customers, you’re going to want to explain it to them.
And the act of explaining, which feels very similar to defensiveness, is what triggers people to backtrack.
So in most cases, I find that working through the positioning of their offerings to make the value proposition obvious and explicit has a two-fold effect:
First, the explicitness of the offer functions like a sales page; even for services, the more explicit you can be about the offer and the results that will be forthcoming, the more easily potential clients will be able to see themselves in possession of the offering. This has a tendency to increase sales.
The second reason is that the act of positioning the offer so that its value is obvious takes the pressure of selling off your shoulders. Because the value is obvious, the only decision the potential buyer has to make is whether they need the service or not. It relieves you of the need to persuade, which is the thing that people find difficult, and what leads them to erode their profitability by offering extra freebies. Again, I don’t think this is an issue of self-esteem as much as it is poor negotiating skills.
So if you find yourself saying you’ll raise your rates but you don’t take the time and study your positioning: Run it by other people to make sure that it’s compelling so that you don’t second-guess yourself when the time comes to make the sale.
Not sure where to begin? Here’s a checklist to