One of the hardest things about running your own business is raising your rates. And, with the way the economy has been the last few years, it’s doubly hard. After you’ve cut your costs as much as you can, it’s probably time to consider changing what you charge. Especially in bad times, charging enough to make a profit is critical to your business success.
Almost everyone believes that raising your rates will cause you to lose jobs. The truth is that having lower rates doesn’t always mean having more customers and profits. The ultra price sensitive customers that you have may not be the customers that you really want to keep.
So let’s take a look at some of the signs that you may be charging too little.
You live modestly and you still don’t have enough money to make ends meet. If you are skilled enough to provide a good service, you should be able to earn enough to live on. While it’s not unusual for new businesses to struggle, established businesses with reasonable word of mouth and repeat business should be able to prosper in almost any economy.- You have to work more than 60 hours a week just to get by. If you want to work that much because you like what you’re doing, go ahead. If you have to work that much because your business can’t survive on fewer hours, you have a real problem. Everyone needs some time off occasionally.
- You can’t afford to upgrade the tools you really need to do your job. We all depend on our tools to provide the services we specialize in. When things wear out and technology changes, we need to have the means to replace and upgrade. Replacements and upgrades are just a part of normal business expenses.
- You have a family member working in the office for little or no salary.
- Your rate hasn’t changed in years. Are you still charging what you charged a year ago, or even five years ago? It’s not uncommon to hear about businesses that never raise their rates. As we always say, Measure Monthly, Adjust Quarterly. Even in times of low inflation, your costs go up.
- You always feel desperate when submitting a new proposal because your business is one or two payments away from shutting down. Sometimes businesses find themselves in an economic hole, and feeling that you have to win a particular bid is normal. But, if your rates are so low that you’re always feeling desperate, it’s time for a change.
These signs that you need to raise your rates can drive you in two directions. You can either raise your rates, or cut your costs. If you’ve made it to this point in this economy, chances are that you have already cut things to the bone. Take a look at your costs using a tool like Numbers Cruncher or any of the breakeven calculators that industry associations provide to see if you can cut more, and still stay in business.
If you’ve looked at all of your costs, and you can’t cut any more, your only real option is to raise your rates. Knowing your actual breakeven can make this easier to do. Your choice will be to continue to short change yourself and your employees by charging too little, or you can ask your customers to pay a more reasonable price.
Once you’ve firmly established where you stand financially, you can make the decision that is right for your business. Remember that any reasonable choice you make that will allow you to continue to provide your customers with the services they need, benefits your customers too.
One of the hardest things about running your own business is raising your rates. And, with the way the economy has been the last few years, it’s doubly hard. After you’ve cut your costs as much as you can, it’s probably time to consider changing what you charge. Especially in bad times, charging enough to make a profit is critical to your business success.
Almost everyone believes that raising your rates will cause you to lose jobs. The truth is that having lower rates doesn’t always mean having more customers and profits. The ultra price sensitive customers that you have may not be the customers that you really want to keep.
So let’s take a look at some of the signs that you may be charging too little.
-
You live modestly and you still don’t have enough money to make ends meet. If you are skilled enough to provide a good service, you should be able to earn enough to live on. While it’s not unusual for new businesses to struggle, established businesses with reasonable word of mouth and repeat business should be able to prosper in almost any economy. -
You have to work more than 60 hours a week just to get by. If you want to work that much because you like what you’re doing, go ahead. If you have to work that much because your business can’t survive on fewer hours, you have a real problem. Everyone needs some time off occasionally.
-
You can’t afford to upgrade the tools you really need to do your job. We all depend on our tools to provide the services we specialize in. When things wear out and technology changes, we need to have the means to replace and upgrade. Replacements and upgrades are just a part of normal business expenses.
-
You have a family member working in the office for little or no salary.
-
Your rate hasn’t changed in years. Are you still charging what you charged a year ago, or even five years ago? It’s not uncommon to hear about businesses that never raise their rates. As we always say, Measure Monthly, Adjust Quarterly. Even in times of low inflation, your costs go up.
-
You always feel desperate when submitting a new proposal because your business is one or two payments away from shutting down. Sometimes businesses find themselves in an economic hole, and feeling that you have to win a particular bid is normal. But, if your rates are so low that you’re always feeling desperate, it’s time for a change.
These signs that you need to raise your rates can drive you in two directions. You can either raise your rates, or cut your costs. If you’ve made it to this point in this economy, chances are that you have already cut things to the bone. 
Take a look at your costs using a tool like Numbers Cruncher or any of the breakeven calculators that industry associations provide to see if you can cut more, and still stay in business.
If you’ve looked at all of your costs, and you can’t cut any more, your only real option is to raise your rates. Knowing your actual breakeven can make this easier to do. Your choice will be to continue to short change yourself and your employees by charging too little, or you can ask your customers to pay a more reasonable price.
Once you’ve firmly established where you stand financially, you can make the decision that is right for your business. Remember that any reasonable choice you make that will allow you to continue to provide your customers with the services they need, benefits your customers too.