Ready to 10x your rate? Do this first.
One of the trickiest parts of growing your business is perhaps getting your pricing right. Many entrepreneurs struggle to raise their rates high enough that they are actually able to do things like hire a team, implement systems or scale their business. That is why commanding a premium price for your services is one of the best things you can do for your business. However, before you jack up your rates you must make sure the ROI is there for your clients. Here are three simple shifts you should make when raising your rates.
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#1 – Price Based on the Value (NOT the time)
The last thing you want to experience when you raise your rates is resistance in your sales process. Luckily, there is a simple shift in the way you set your prices that can help with this process, and it’s called Value-Based Pricing.
Value-Based Pricing is where you charge your client based on the ROI they can potentially experience from your services. So, for example, if you can help them make 2 more sales/month, and their product sells for $10,000 they have a potential ROI of $20,000/month ($240,000/year).
How much would you pay for a service like that? You could charge anything short of $20,000/month and the client would still come out on top (though you would likely price a service like that around $5k – $7,500/month).
Compare this to how most people price – Activity-Based Pricing. When you focus on what you are going to do (i.e. social media, marketing, design, etc.) then the conversation quickly becomes about a low-level hourly rate.
Your service could drive the same results as above, but when you focus on the activity rather than the results your rates tops out at about $120/hour.
#2 – Offer Fewer, but Better Services
You have probably heard of the 80/20 rule that states 80% of your results come from 20% of your efforts. That same ratio is true of your offers and your clients.
20% of your clients are responsible for 80% of your revenue, 80% of your joy and 80% of your results.
On the flip side, 20% of your clients are responsible for 80% of your headaches, 80% of your problems, and 80% of your frustrations.
So, it’s time to take niching to the next level and ditch the clients that make up the bottom 20%.
This will allow you to cater your offers, your prices, and your entire business to the clients that make up the top 20%. These clients pay more, respect you more, and get better results.
By focusing on this group of people, you will be able to provide a better service that drives better results, which makes raising your rates easier.
(In my consulting company we call this process a “Focused Few Analysis” – and we actually rank your clients so that we know EXACTLY who your ideal clients are. If this is something you want to do, make sure you reach out to me and get help on this process).
The great thing about going through a process like this is that you actually leverage your current client roster to build an irresistible offer that is catered to a profitable niche you love to work with. It’s truly a process worth the time and effort.
#3 – Create More Demand
We all learned how to raise our rates in 4th grade – at least on a basic level – when they taught us about supply and demand. When demand is up, prices go up. When demand is low, prices are also low.
What they didn’t teach you is that demand can be created. And it is created in two places:
- In your Marketing – this is why big brands can charge more money (think Apple or Nike). It is also why you should invest in long-term branding and authority building marketing.
- In your Sales – this is the place where you can have an immediate shift in the demand for your services.
In your Sales process, you should be creating a desire for people to work with you. The better you get at creating that desire, the more likely they will pay a higher rate.
This is done, in part, by using the Value Based Pricing model we already discussed. However, your entire sales process will be more effective if you focus on helping them clearly express their goal, the obstacles facing them, and what their true current reality looks like.
It seems odd, but the the more you focus on them and what they want to accomplish, the more demand you will create to solve the problem. This is turn raises the amount they are willing to invest in your services for a solution.