Rethinking Your Pricing Heading Into 2021
In this episode, we’re talking about how to rethink your pricing heading into 2021, including how to raise your prices and all the factors that impact your pricing.
Pricing is one of the more challenging parts of running a business as it can be complicated and nuanced. It can get tied up with our own stories about pricing, and leave us wondering what the right way to price our services really is.
Which is why we’re going to talk about all things pricing in this episode. From raising your prices to figuring out the right price to the psychology behind all of it, by the end of this episode you’ll have a game plan for how to handle your pricing for 2021.
While I’ve been pretty vocal about how very out of control pricing has become in the online business world, the reality is that for most of you, you’re not the problem.
Want to know how I know that? It’s because I talk to people about their pricing every single day, and a big part of that discussion is around how they can charge more for their services.
Heading into a new year is the perfect time to rethink your pricing and everything that’s tied up with it.
Start with a Pricing Evaluation
Before you can make any decisions, you need to understand what’s really going on with your pricing.
Based on your pricing today, begin by looking at how each of your services is currently priced. Look at anything you’ve sold in 2020, and that you plan on offering in 2021.
Then, figure out what it costs you to deliver each service including how much time is involved, and any hard costs such as subcontractors or tools you need.
Next, look for hidden costs. I love to look at what it takes for me to sell a certain service, as that’s often something we don’t account for and should.
Finally, if you can, figure out based on today’s pricing what your average hourly rate is. Even if you don’t charge hourly, getting a handle on your average hourly rate gives you some baseline data to work with.
Factor in Your 2021 Goals
You’ve probably been thinking ahead to your 2021 goals, and I don’t just mean your revenue goals. Yes, you need a target revenue goal, but you should also consider how much you want to work, and if you want to make any change to how you work.
Use those goals to model some scenarios as follows:
What happens if you work with the same number of clients and raise your price? Play with different price points here to figure out some options.
What happens if you work with 10% more clients and raise your price by 10%? What if you work with the same number of clients but raise your price by 10%? What about 20%?
What if you work with less clients and charge more? How much time can you gain?
Working with these scenarios helps you see how small changes to each variable can change your ability to reach your goals.
Let’s say you made $60k this year and you worked with 12 project-based clients. You’d like to increase revenue by 25% to get to $75k.
This is where you’ve got options. You can add three more clients, to hit that goal, but that’s only feasible in some scenarios, and you’re bound by time. In this scenario, your project fee is $5k, but if you raise that to $6k and still work with 12 clients, you’ll hit $72k. Then you could potentially just take one additional client to get it over the $75k mark.
That’s the power of pricing. We’re often so invested in our ideas and stories about pricing that we don’t raise our prices. So we just keep adding clients and send ourselves on a road to burnout.
The key is finding the sweet spot that creates a win-win for both you and the client. The goal here isn’t to extract more money from your clients, but to ensure you’re compensated fairly for your time, and running your business in a way that works for you.
How to Raise Your Prices
Now that we’ve made the case for why you probably should raise your prices, let’s talk about how to raise them.
It’s simpler than you think. You just need to raise them.
Yes, you need to give some thought to the actual way to price them, but to raise your prices you need to actually follow-through and raise them.
For existing clients, this can be as simple as an incremental price increase, and informing them in advance of when it will be happening. In most situations, this will not be a big deal for your happy clients.
Timing is also a factor. Pick your moment for communicating that prices will be increased. Do it when your clients are happy, not when something else may impact their decision making. I’ve been on the receiving end of pricing increases that were ill-timed and if they’d been more thoughtful it would have felt better for me as the client.
For new clients, quote any projects or engagements at the new price. If you’re uncomfortable, stair step the price over time. Book two people at the new price, and then increase the price. Then, keep doing this until you hit your target price.
Let’s Talk About What’s Happening in Your Head
Pricing is one of the more challenging things for most of us as there are so many factors involved.
We get tied up with our worth, what people will think, what’s right, and OMG will anyone even pay that?
Deep breath boss. We’ve all got issues. Even me, after all these years.
And I will say this. I’ve NEVER regretted raising my prices. Most times once I do it, I only wish I’ve done it sooner.
One of my biggest hang ups has been around why I needed to charge more. Like who am I to charge this rate? And what am I even going to do with this money?
True or not, that’s one of my recurring pricing conversations in my head. And I’m sure it’s very familiar to many of you.
If you’re doubting who you are to charge this rate, we need to talk. It’s extraordinarily rare that I see service business owners charging too much, unless of course they’re in the online luxury coaching bubble. If you’re talented at what you do and you delight your clients, there will be people who will pay for your brand of awesomeness.
It’s why something like blog posts can be $20 per and $1000 or more. Being at the higher end of the market isn’t a bad thing, it speaks to your level of quality and the client experience you deliver on.
As for the “what am I going to do with this money?” question, I get it. And the answer is there are many things you can do. You can pay yourself more. You can pay your team more. You can donate money to organizations you care about. You can build a cash buffer in your business.
Remember, making money isn’t bad. It’s what you do with that money and how you choose to deploy your resources from there. I’ve realized that I can make an impact with the money I earn, and as long as I’m not exploiting people to make it, I can live with that. It’s a big reason that I’ve donated more money than ever before this year, and I’m currently creating a structured giving plan for 2021. The work we do matters, as does the way we choose to use our resources.
Let’s Do This: Revamp Your Pricing for the New Year
When you sit down to do your 2021 planning, make sure you consider pricing as part of that plan. Many of your goals from increased revenue to more time off to more money donated hinges on your pricing.