Is it finally time to raise your rates?

Let me lay out a scenario I see far too often: My client {hereafter known as Tessa, simply because I love that name}, has been in business for three years. Her business has been very busy…she’s regularly booked solid, but when I look at her dividend payments, she’s making very little money. After paying babysitters almost as much as she’s making, staying up until midnight to clean her house and pay her bills because her days are so full, and waking up at 5:30 AM the next morning to start all over, Tessa’s done, ready to give up and move onward.

When I dig a little deeper and lay out all of her expenses and analyze her profit margins, they are a dismal 13.5%. And, while there are absolutely some major expense shearing I’d like to see, it’s not the big problem.

Her rates are.

She’s never raised her rates once in three years and is terrified of the idea that her clients that she’s earned by sweat and blood will disappear the moment that she hints at the idea of price increases. So she waits, underpriced and undervalued, drowning in her own financial flood.

Sound familiar?

After working with thousands of entrepreneurs and personally directing the transition to new pricing of over 100 businesses {including four of my own}, I can tell you it shouldn’t be this way.

There are key indicators that can tell you when it’s time to raise your rates and as my clients will attest, if you make a transition correctly not only will you keep your clients, you’ll increased their chances of seeing stellar results.

So, how do you know if it’s time to raise your rates?

1. If you {or any of your employees} are at 80% max capacity of clientele.
It doesn’t matter whether you’re a Pilates’ instructor, a graphic designer, a salon owner or a mental health therapist. If you consistently fill 80% of your max appointments for 12 weeks straight, you are due for an increase. Likewise, if your business has a team of individuals and you see one at 80% of their max appointments over a 12-week period, it’s time to create a new tier and move them into it.

This is simply the law of supply and demand. You have a limited supply of hours and a high demand, which puts you in a prime place to raise your rates.

For those who are wondering, “what does this mean for my current clients?”, the answer is simple. You guide them gracefully {and personally} onto the new pricing. This means you’ll work with them 1:1 to set them up onto the new pricing, without apologizing for it, but thanking them for their loyalty and relationship.

2. If you are now priced at the low end of your competition and are completely immersed in a price war.

I can’t tell you how often I find someone battling it out against a competitor whose main market angle is cheap pricing. Let’s be honest…unless you’re in a town of under 12,000 people, chances are at some point a low priced competitor will show up. They are generally well funded; therefore, marketing isn’t an issue. They scream their prices, but lack on customer service. And, their client will have an experience, albeit not one that will appeal to most people.

Does this sound like your business?

No, of course not. You own a boutique business, which offers a high level of customer service and an extraordinary experience that brings your clients great results. So why on earth are you trying to compete with these behemoths?

Instead, raise your rates and create a more extraordinary experience. The fastest growing sectors in any given industry are almost always the luxury segment and the low-priced giants. The luxury segment has fewer customers who are willing to pay higher dollars for extraordinary service. Having built one of these businesses, I can tell you when you make the turn for luxury, few look back, because they can offer so much more with so much less headaches and work.

3. If you have not raised your rates in a 24 month period. I’m a huge fan of small price increases every eighteen months to two years. These minor shifts will allow you to gradually increase your profits, margins, regularly raise the income packages of your employees or independent contractors.

What does a typically shift look like for me? Normally, no more than 3-5%. That means on a $50/hour service I would raise my rates between $1.50 and $2.50/hour.

Seem doable? Maybe it seems even a little bit on the low side?

Well, assuming I started at $50/hour and raised this every 18 months for six years while working a steady thirty hour week, I would increase my yearly pay from $78,000 in year one to 93,600 in year six. That’s about a 40% increase in pay in just six years…not too shabby considering it’s a graceful transition.

So here’s my question for you…is it time to change your rates? Are these rates holding you back? Is it time to finally move to the next place in your business? If so, what’s your next step?

Recommended Episodes

  • Studio Surge – Unveiling Growth Strategies and Transformative Insights around a Multi-Studio Expansion

    Y’all, Imagine, just for a moment, standing in the heart of not one, not two, but…thirteen buzzing studios. Okay, perhaps it's just me and my wild daydreams, but seriously, can you imagine? Queue the drumroll because in EPISODE 577, we’re getting cozy with the dynamic power couple, Beth and Brent Potter, who’ve done just that.…

    Listen Now

  • A Journey of personal and business growth. Meet Kim Paxton who is building a classical pilates business in Australia

    Y’all, Have you ever found yourself mid-Pilates stretch, letting your mind wander off to Australia's sun-drenched coasts? Just me? Oops! Well, whether you've dreamt of it or not, Australia's got some Pilates magic brewing, and I just had to dig deep into it!  So, in the latest EPISODE 576, I got all chatty with the…

    Listen Now

  • Forging a Place For Female Leadership in Fitness: Meet Andrea Bell, Inspire Brands Asia Partner and Anytime Fitness Master Franchisor and Learn What's Factors Are Driving Success For Women in Fitness

    Y’all, Ever had one of those days where juggling even a handful of fitness classes feels like a whirlwind?  Oh, trust me, I've been there, and I've got the coffee stains on my shirt to prove it! But imagine, just for a second, being the driving force behind 340 fitness studios. (Mind-blowing, right?) In EPISODE…

    Listen Now

  • From Investor to Acquisition: Meet Desiree Guillard-Young and Walk Alongside Her Path to a 4 Studio Acquisition and New Role As Director of People for FitLab

    Y’all, Ever been curled up on your favorite couch, sipping some tea (or, hey, maybe that cheeky glass of wine), and had a little “aha” moment about your clients?  Like, why does Sarah come rain or shine, while Mike seems to drift in and out like a summer breeze? Well, guess what? In our latest…

    Listen Now