How and When to Raise Prices

It is important to know when and how to raise prices.

When it is done well, it will greatly improve the quality and profitability of your business. If poorly implemented, significant and lasting damage can result.

Reasons to charge more

The first reason t raise prices is to bring your charges in line with the level of service you provide. My article in April stressed the importance of matching price to service.

Overcharging motivates consumers to use your competitors. Lower prices thrill the customers but destroy your profits.

For example, a gourmet style restaurant would not stay in business long if it charged fast food prices. It costs more to provide a higher level of quality and service. Thus, if you are providing a high level of service for a low price it will be hard to succeed.

If your pricing is too low for the service you provide, you should increase it as soon as possible.

The second reason to raise prices is to make room in your schedule for more profitable clients. Pricing is a grooming tool. Consumers who are below your target market are generally the first to leave when prices rise.

This strategy is only effective when you have more work than wanted and your client base is firmly established with repeats and referrals. If you depend on advertising or Internet searches, increasing your prices will have a negative impact.

Unlimited price increases

A business based on repeats and referrals has the potential to raise its prices continually. “Supply and demand” becomes the indicator of when. If you are consistently booked seven to 10 days in advance, it is time to consider a price change.

You can steadily raise prices over the years as long as you continue to provide good perceived value for your price, and your target market is large enough. Since your customers are coming to you as repeats and referrals they are not comparing you with lower price companies.

It doesn’t take many of these increases to make a dramatic impact on your profit.

Raising prices is not a shortcut to success

Some people increase prices in an attempt to avoid the hard work of building a successful business. Raising prices without providing higher perceived value, and without building a solid and profitable clientele, can cause a company to fail.

Some want to charge higher prices to gratify their ego. The thrill of bragging about being the most expensive cleaner in the area will come at a high price to the owner.

Increasing your rates because another company raised theirs, or because a supposed marketing “expert” told a room full of carpet cleaners that everyone should raise his prices, is a poor excuse. Prices should be established according to the unique needs of your company. What others are charging should have little influence on what you do.

The damage done when prices are raised for the wrong reasons might not be clearly seen for at least a year. A repeat customer will usually go ahead and schedule the work when you inform her of a new price. But she will have a long time to think about whether or not you are worth it before the need for your services arises again.

Raising prices while you are still building a base of repeat customers will slow growth. Having higher prices than your competitors is a reason for many shoppers to eliminate you from their consideration. It is not wise to have prices above the norm for the target market when building your clientele.

Dealing with the fear

Many owners are afraid to charge higher prices. The thought, “I wouldn’t pay that much to have my carpet cleaned,” haunts them.

Hopefully, these owners are not their own target market. Many successful companies focus on target markets that are willing to pay higher prices for more service.

What is important is to make sure that your prices create a great value for the people you service.

You are more sensitive to your new prices than are your customers. People understand that prices go up. Don”t make an issue of it.

Maintain a “matter of fact” attitude and just tell them the price.

I have yet to visit a restaurant that posts a sign that says, “Warning, we raised our prices!” And yet, when carpet cleaners do it, they often act guilty and feel compelled to warn customers. Of course, no one likes to pay more for a service.

Some people may notice and comment, but as long as you provide a good value, they’ll accept the increase.

Explaining big increases

Be aware of how long it has been since your last increase. A customer who hasn’t called in a few years might see a combination of price hikes and be startled to find a big change since the last time.

Calmly explain that it has been a while since her last cleaning and that there have been two price increases during that time. Or, you might consider charging her one of the previous prices now and wait until next time to increase her invoice to the current charge.

Spreading out the increases

You can raise prices for your other services separately. One time you might raise your minimum charge, another time the price for applying carpet protector or cleaning stairs, then upholstery cleaning, etc.

Your overall profit is determined by the total price you charge. Spreading out price increases will make it less shocking.

Increases do not have to be made for all customers at the same time. Prices can be raised first for new and low valued customers. Then proceed to mid-value customers and finally to premium clients.

Be proud of your prices

There will always be someone who will complain about your price. People below your target-market will think you are more expensive than they can afford. Politely suggest that you may offer a higher level of service than they require and offer a referral to another company more suited to their price range.

Price increases are a natural and important part of growing a profitable company. Develop a strategy to guide you through the process. This should not be an emotion-based decision.

A firm and thought-out pricing strategy gives you confidence when you inform your customer of her service charges. Consumers sense whether you are comfortable with your prices. If you trust your strategy, your customers will trust it also.

Steve Marsh is the creator of the Be Competition Free Marketing Program. He is a 30-year veteran of the carpet cleaning industry, an IICRC-approved instructor and a Senior Carpet Inspector. Marsh is a marketing and business consultant who provides a turn-key program for attracting better customers. For more information, log on to www.BeCompetitionFree.com.