Over many, many years, I have had the opportunity to consult with businesses on their pricing schedule. This is especially difficult with smaller firms where the individual is really providing labor (i.e. a person doing home repairs, a masseuse or a landscaper).
These people usually work long, hard hours and charge minimal fees. I will often try to persuade them to increase their hourly fees, and invariably, what they say to me is, “Garf, if I raise my fees, I will lose business, and I just can’t afford to lose any business.”
The only successful way I have found to persuade them is to get them to do an analysis of how much they can afford to lose and still break even. Below, you will find a chart I have prepared to illustrate the principle:
|5 Hours a Day||$225||$275|
|48 Weeks a Year||$54,000||$66,000|
|Weekly Lost Hours to Break Even||5.55|
Conclusion: With a $10 increase in fees, you could lose a whole day’s work each week and still break even.
This analysis reflects somebody charging $45 an hour, working 5 hours a day and making $54,000 a year. My suggestion is that they go to $55 an hour which would return to them $66,000 a year. In looking at the analysis, they are always amazed at the fact that I say to them, “Do you realize that you could lose a whole day a week, go from working 5 days to 4 days and you would be making exactly the same amount of money that you’re making now.”
This normally gives them the courage to give it a try and raise prices. Keep in mind that the owner of the small business is providing labor, and therefore, anything additional they receive is 100% pure profit. When they see how much they can afford to lose, their reaction is always, “Can this really be true?”
In every single case where I have convinced somebody that they are worth more than they have been charging, I have never seen a case where they didn’t come out with a positive result. Sometimes, they did lose hours, but they were still making more than they did previously, and now had time to do some marketing.
Therefore, the next time you are wondering if you should raise prices, my suggestion to you would be to figure out how much you can lose and still break even. It may give you unbelievable courage.