Deciding whether or not a rate increase is warranted is usually an easy process for most business owners. That's because it's often precipitated by an increase in costs of supplies, or other types of overhead. Any profit-oriented business will eventually have to pass along those added costs to customers. But what if you're in a service industry - do the same rules apply? Are customers as willing to accept a rate increase?
Passing along an increase can be a sticky situation with customers. If you are ready to raise rates, here are some considerations when deciding if it is the right time for a price hike.
1. Time Since Last IncreaseIf your last rate increase was more than 18 months ago, it's definitely time for a price review.
2. Additional OverheadAs with any other business, your service-based firm may have experienced an increase in overhead. Have you hired employees? Did the cost of health insurance go up? Are you spending more on gas to commute to and from clients' offices? Take a look at the expenses eating away at your bottom-line and compare them to the previous year. You may be surprised to see what even a 10 percent increase can do to your profits.
3. National AffairsFrom a gas crisis to a health care crisis, there may be highly publicized national issues that are impacting overall expenses for businesses. If your firm is affected by these types of costs, customers may even expect your rates to go up.
4. New Expertise/CertificationsExperienced consultants work hard to stay ahead of the curve learning new trends and skills that benefit customers. If you have recently gained new certifications, or additional professional credentials that help clients, that knowledge has value. Don't be afraid to increase rates as your expertise grows.
5. Carving a NicheAs the world moves away from generalists and seeks guidance from experts, customers recognize that specialized types of services will cost more. If you are becoming specialized in a particular area, especially a new or less widely known niche, it may indeed warrant a higher rate.
6. Local MarketDuring any price review it's imperative to consider local market rates, or what the market will bear. Often the amount customers are willing and able to pay are the biggest influencers in determining rates. Note: consultants working in multiple or international markets may have to contrast rates to industry standards as opposed to a specific geographic location.
7. Competitor RatesEven if a market can sustain higher rates, your competitors' prices may be a more accurate barometer to guide your decisions. Do you want to be the highest priced consultant in your field/market? Do you offer certain advantages that warrant a stiffer fee than what your closest competitor charges? Or are your fees much lower than competitors? Offering freelance/consulting services at fees far below the competitors' rates may undermine your credibility.
8. Adding a PartnerWhen expanding your firm, or adding a partner, it's not unusual for service professionals to simultaneously announce a rate increase. Usually this is because there may have been too wide of a discrepancy between the individual partners' fees. Or the addition may have involved moving into larger office space which increased overhead.