What To Do If You're Worried About Raising Your Prices
One of the hardest parts about running a business is setting your prices.
Whether you’re selling products or services, knowing what on Earth to charge for your offerings can be an absolute minefield. I’ve been having this conversation with lots of different freelancers lately about being concerned you’re too expensive or worrying about doing a price increase, and I so I wanted to share some of my thoughts in a blog post and video.
Prefer to watch? Check this out on YouTube:
The most important part of pricing in your business…
… is making sure you have enough money to a) live off, but also b) create the life you imagined when you decided to set up in the first place. Many of us left secure 9 to 5 jobs because we wanted more freedom in our day to day lives, and also because we won’t be capped on how much money we can make. Your pricing should enable you to achieve those goals, because otherwise - what’s the point?
Running a business is incredibly stressful, with way less security and fewer ‘benefits’ (ie. maternity leave, sick pay, pensions) than being an employee. So your pricing should mean that your business income is suitably compensating you to make all that stress worthwhile!
However what usually happens is we end up on a hamster wheel of just trying to keep our businesses afloat, forgetting why we started in the first place.
If you want to know how much you should be making as a minimum, do the below calculation:
How much do you want to be making as a salary? So how much money do you need in your own personal bank account (not the business bank account) to pay your bills, do the things you want to do, and save some money along the way?
Let’s say for the purposes of this example, that number is currently £2000 per month.
Now how much do you typically spend in your business each month? This is just your business expenses (not personal). Let’s say your business spends £500 per month.
I would always recommend using the ‘Profit First’ accounting method (explained in this amazing book* - I recommend this to ALL freelancers!), which encourages you to put a small % away each month into a ‘Profit Pot’ which essentially acts like a bonus for you to spend on developing your skills or enhancing your business at the end of the year.
Let’s say you want to dedicate 5% to this (which is what I do), which equals £125 of £2500.
And of course you have to remember to put aside some money for tax season! This is typically 20-30%, and 30% of £2500 is £750.
So now we add all this up:
£2000 (desired salary)
£500 (monthly expenses)
£125 (5% profit)
£750 (30% tax)
= £3375
^ That amount is the total monthly revenue/income you need to be making in your business as a minimum in order to hit your salary and profit goals, while accounting for expenses and tax. I’d encourage you to do this calculation and work out yours!
Take a look at the number you come up with: can you make that amount right now with your pricing as it currently is? How many products do you have to sell or clients do you have to work with to obtain that? Is it possible?
If the answer is no, you might need to consider increasing your prices.
If you are worried about raising your prices, here are some words of advice…
There are always people with different budgets and different priorities at different life stages.
In every industry for every product or service, there are low and high end versions, even though the outcome, end result or product might be the same. This is because people buy for many more reasons than just price; they might have other priorities such as sustainability, convenience, or how it will make them feel or how it will affect their reputation/social status.
For example, think about crockery (plates, bowls etc.). There are cheap and expensive crockery sets, but at the end of the day they all do the same thing of allowing people to eat off them and it’s very hard to say that one version allows people to do that better than the other, and yet people still choose to buy expensive designer crockery sets vs. Ikea ones.
And that’s because there can be different markets (ie. different people with different priorities who are in different life stages) for any product. A Uni student buying an Ikea set is a very different customer than a Grandma buying a wedding gift, or someone who has moved into a new family home and wants to upgrade their stuff.
Make sure you’re marketing to the right people on this scale!
Check out my ‘Understanding Your Ideal Customer Masterclass’ >>
If you see other people charging less, remember you don't know what's going on behind the scenes.
If you see someone offering what you do for much less, remember you don’t know what’s going on behind the scenes! They might be at a completely different stage of their business journey than you, with less experience, or they might REALLY be struggling to make ends meet on those prices, and they have their own money mindset blocks stopping them from increasing their prices.
OR they might be having their income from this subsidised by something else! Perhaps a partner is able to pick up their income gaps, or maybe they have other forms of income from other sources which means that making more money off that particular thing isn’t as important to them.
Start comparing yourself to people/brands in the next level up.
If you’re constantly comparing yourself with businesses offering cheaper versions of what you do, of course you’re going to be worried that you’re charging too much and that you’re not worth it. Start playing in the arena with people in the next level up, and watching what they’re doing instead! Chances are you’ll end up finding people who are charging even more than you are, so that will change your perspective.
Pricing is all relative.
clients are paying for your years of experience and your skill level.
If you’re worried about charging more for something you can do quickly, remember than clients are paying for your years of experience, NOT for the time it takes you to do something. Otherwise, just think, you’d be penalised for being good at your job and completing a task efficiently, which takes years of practice and skills to allow you to do that!
This is one reason why hourly based pricing is sometimes not a good idea.
If you need to pep yourself up, just look at your previous testimonials.
If you’re ever in need of some motivation and positive mindset shifts, just take a look at previous testimonials and reviews you have from previous customers who love what you do and have seen first-hand the value you offer.
And What's really the worst that can happen?
Worst case scenario is you get rejected by someone who says you’re too expensive. It’s not the end of the world, it just shows they’re not the right fit for you, and you’re not the right fit for them, because right now they can’t see the value of what you offer. Probably because they’re not your target market as they have different priorities and might be at a different stage right now.
But realistically even in 5 years of my business I’ve only ever been questioned about my prices once or twice; it rarely ever happens!
A final note…
Remember, You are NOT your prices!
If you charge more than someone else, that doesn’t make you a bad person. And if someone else charges less, that doesn’t make them a good person. We need to stop associating our self-worth with our prices and the success of our business.
If anyone does think that way, that is an issue with their own money mindset, and it’s not on you.
You do you and raise your prices!
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