Steps To Raise Your Prices
*This post was originally posted on Medium and was geared toward Photo Booth Business Owners. I’m now adapting it to cover a wider range of businesses.
If you are a business owner and want to raise your price or offer a premium service, then this is for you.
Anyone can decide to raise her prices, a much tougher task is to sell at those prices. So, how does one do that? You could launch a marketing campaign but doing that alone would not cut it. You could change your branding, again that would not be enough. Instead, you need to go to the drawing board and do an exercise every single business should do as they launch or plan to increase their prices.
Without further ado, let’s dig in. Here’s what we’ll be talking about:
- Be patient
- Set yourself a very clear financial goal
- Know your competition
- Know/create your value proposition — What differentiates you from the competition
- Understand your yearly cost structure
- Know your cost of goods sold — what does a single sale cost you
- Define your markup and set your price — Explain why it is what it is
- Do what you must to sell at that price
- Some personal experiences that will give you hope
Alright, let’s do this.
1- Be patient
Don’t get fooled, very few business owners became successful in their first year in business. You need to realize that they once were where you are today, just starting out and figuring things out. Everything takes time, do what’s right, work smart and maybe you’ll be able to charge the price you want to your clients.
2- Set yourself a very clear and simple financial goal
This can literally be anything, you just need to have one. Whether you want to make an extra 10k a year or have a $5 million revenue after 5 years, just establish it. You need to know where you’re going before you start the journey. That’s the only way you’ll properly equip yourself.
3- Know your competition
Not everyone agrees that you should spend time studying your competition and I can respect that. What I’m asking you to do here, is to simply be aware of those who have the potential to take business away from you. You do need to know where the curve is if you want to stay ahead of it.
4- Know/create your value proposition
What is it that you and only you can provide to prospective clients? To answer this question properly we need to go through a series of exercises that can take weeks so I’m going to try to simplify this for you as much as possible:
- Step 1: List all your products and services
- Step 2: List everyone you think can be your customer
- Step 3: Describe why a customer (step 2) would want the type of service you offer. There could be various reasons. Let me break it to you, you will never be able to offer services that satisfy every single potential client. Your answer here will start shaping who your ideal customer is.
- Step 4: How do your products and services create gains for your customers?
- Step 5: How do your products and services alleviate your customers’ pain?
- Step 6: You probably won’t be able to answer the previous two questions for all the customers from Step 2. That’s alright because it will make you realize that all those you thought were your customers, actually are not. The ones you’re left with are your “ideal clients”.
- Step 7: This is where we will typically create a persona for your client. You’re more than welcome to do so, but I’ll encourage you to do more than that. I believe a persona clouds you from other opportunities, instead create a tribe. Tribes are groups of various personas, each associated with your pain relievers and gain creators.
- Step 8: Are you the only one in your market that can satisfy that tribe? I hope the answer to that question is yes. If it’s not, then realize that you do not offer anything unique. Go to step 8A below.
- Step 8A: Here’s the good news, you know your competition and you know your ideal client. If the latter has a need the former does not satisfy then you just find an opportunity.
- Step 9: Formulate your value proposition. It goes this way. Who you are, what you do, how you do it, for who. You can stop here if you want. I promise you if you live by your value proposition you’ll magically be successful.
5- Understand your yearly cost structure
This is a little more complicated than I’ll make it sound but if you can start with this, you’ll be okay (hopefully). What goes into the business? The website, marketing material, subscriptions, insurance, etc… List them, every single one of them with their associated cost. Split them into two categories, essential expenses, and non-essential expenses.
Our Profit Estimator Spreadsheet has a tab dedicated for that.
6- Know your cost of goods sold — what does a single sale cost you?
List all the expenses that go into a sale. If you are a photo booth owner for example you have to pay the attendant, spend money on media, gas, get a sitter for your dog, pay yourself, and so on. You should be able to determine this cost for each event, that way at least you will know you cannot price yourself any lower.
7- Define your markup and set your price
Alright, how many sales do you need to do per year at what price in order to break-even then reach your financial goal? Sell low, book many events and get a smaller profit, or sell high, book fewer events but get a larger profit. If you’re reading this, I’m assuming it’s because you want to sell high. For some of you, this will be impossible because your tribe (step 4) cannot afford to buy high. If that’s you, you have two options. One, go back and revisit your value proposition. Two, accept the fact and sell low, there’s nothing wrong with that. It is actually way easier and can sometimes be less stressful. But if you want to have higher prices (expensive is an opinion), you must find those willing to pay them.
Check out the Profit Estimator Spreadsheet for guidance.
8- Do what you must to sell at that price
Your tribe needs to understand why they are paying you more money when they could essentially get the same service for less money. Kia is cheaper, yet people buy Bentley, why? The answer is in your value proposition, but only you know that. If you cannot communicate it, then it won’t serve you any purpose.
a. Think like your tribe
You cannot convince someone to pay you $1000 for a two-hour job if you think it’s unreasonable. Actually, you need to tell yourself that your services are quite reasonable and that for the value you bring it’s a steal. Those who can pay higher prices, most often don’t look at the price tag.
b. Be your value proposition
If you claim to do something, do it in every aspect of the business. A high-end service means a high-end service (from the first email to the email you send the client 3 years after the event). It means high-end onboarding, high-end communication, stellar customer service, and so on.
c. Go to the right places
Don’t be like my cousin who wants to meet a rich guy (that gold digger! Don’t you laugh, no one digs for dirty) yet only goes to cheap bars, It doesn’t add up. Be selective about the expos you go to. Partner with the right players in your industry.
9- Some experiences from my photo booth business that will give you hope
Here are some personal experiences to show you that those willing to pay the higher prices are out there:
- $300. That’s the number I gave when the client asked me to stay one idle hour and run the booth for 30 minutes after. She looked at me shocked and told me she expected more. I hated myself that night.
- A trip to another city for an event. The travel expenses were about twice as much as the service we provided.
- A client who didn’t care about knowing my prices because she wasn’t going to work with anyone else but us.
- I could keep going but you get my point.
Stay positive, be patient, work smart and make that money!
Schedule a free consultation with me to see how I can help you with your pricing strategy.
These are just basic questions you should ask yourself for your business. You should aim to answer yes to all of them.
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