When was the last time you increased your small business’s prices? If it’s been more than a year, it might be time to reevaluate. You may have even started with fees that were too low, so you’re constantly playing catch-up instead of thriving.
Raising fees is a scary topic for many small business owners – and it’s understandable! I used to be scared of raising my fees, too. I know that you want to keep your clients and keep the peace. However, refusing to raise your fees directly hurts your business. Let’s talk about how to master the fee increase.
Each year at the PASBA (Professional Association of Small Business Accountants) conference, I teach a session about raising fees, and an entire day is dedicated to the topic. That’s how important it is! In this article, I’ll give a recap on these points:
- Why some business owners are afraid to raise their fees
- Signs that you should raise your fees
- How to present fee increases to your clients
Common Fears About Raising Fees
Different businesses can have different fears – or even a lack of fears. Let’s talk about these types of businesses:
- Larger businesses
- Product-based businesses
- Small, service-based businesses
Larger Businesses
Larger businesses tend to have larger client bases and high loyalty. They don’t fear much when it comes to fee increases, especially if they’re one of the only major players in their industry.
Product-Based Businesses
Product-based businesses of all sizes can consistently and discreetly increase charges for their inventory. They often have no trouble justifying it, since the cost of raw materials and retailing is almost always increasing. That means each industry typically increases at the same rate, so they don’t have to worry about their increased prices standing out.
Small, Service-Based Businesses
Small, service-based businesses often worry about losing clients from their small client base, and they worry about finding the right price increase. It can be hard to justify a service fee increase if it’s too high – or frequent increases if they’re too low.
Since these types of businesses have the most fear, they’re who I tend to focus on when talking about fee increases.
I believe that you shouldn’t worry about losing some clients, especially if you have a decent client replacement mechanism (like a great website or referral sources). After all, clients who worry too much about price aren’t the ones that you want to have, anyway.
Don’t concern yourself too much with a few complaints, either. As a general rule, if you never get complaints about your fees, you’re not raising them enough. Your clients are very happy with how cheap you are and don’t see the value in what you provide.
Signs It’s Time to Raise Your Fees
There are two main areas that can indicate you need a fee increase. They include:
- Inflation and increased requirements
- Service scope increases
Inflation & Increased Requirements
Inflation affects a number of areas that cut into your profit margin. Most people automatically think about the cost of goods, but the cost of labor also increases over time.
Wages to keep up with inflation are one thing, but additional labor costs to consider are increasing government-mandated employment benefits, like employee retirement plans and paid time off policies.
Service Scope Increases
For service-based businesses, you also need to consider the scope of work. If the work you provide for a client increases in volume, then you need to increase your fees – especially if it takes your staff longer and you don’t bill hourly.
Even if the work just increases in difficulty —such as more challenging government tax forms for CSI Accounting & Payroll to complete— you should still increase your fees. Your staff is putting in more effort and increasing efficiency, so you may decide you need to pay them more. This justifies a fee increase.
6 Ways to Present Fee Increases to Clients
Because there are many ways to bill clients, fee increases can be presented in many ways. Just be sure to keep your promises and legal obligations!
Here are my top 6 tips for raising your business’s fees:
- Have a good system. You should have an established system to re-examine fees regularly. For example, you may reflect on your fees versus your profit margins every six months or annually.
- Don’t present small increases. If you’re raising fees across the board, you don’t need to announce the small ones. Just send the bill!
- Announce and justify large ones. If you’re raising fees by large amounts, I recommend a more personal touch. Send out clear emails, and call each client if possible. Mention when, why, and how much.
- Increase it all at once. Don’t do frequent increases in small increments. One large increase will generally be much more accepted by clients.
- Always explain individual increases. If a large fee increase is just aimed at a particular client, explain the reasoning to them immediately. Whether your client experienced rapid growth (increasing your scope of work), or they were priced incorrectly off the bat, most clients will be understanding if you talk to them personally.
- Break up the bill. If you have clients who only work with you annually, splitting that bill monthly can make a fee increase more digestible.
Always Know When to Raise Your Fees!
Let this be the last time you’re caught off guard with your fees. Did you know that partnering with a monthly accounting service like CSI Accounting & Payroll can give you insights into your business’s finances each month? You’ll be able to monitor your profit margin and get professional advice on when you should be raising your fees next time.
To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what it’s like to work with us by clicking the image below:
