On the outside, Miriam looks like a successful freelance graphic designer. She has a steady flow of clients and an impressive portfolio. One of her projects even garnered an award at a recent marketing event. But Miriam knows the truth: she works 10-hour days yet barely makes ends meet. She started her company six years ago but, financially, she still feels like she’s slaving away for a less-than-impressive profit.
Miriam’s problem is all too common among businesses in the frum community. Be you a designer, hair-stylist, tutor, butcher, baker or Shabbos candlestick maker, you probably feel that your income is limited by the market rates and the number of hours in the day.
It’s normal to make little profit in the early days (as discussed in the previous Mind Your Business column). But you don’t want to get stuck in the “scraping-by” mindset. At some point, you’ll need to raise your prices.
The Myth of the “Going Rate”
People regularly ask: “What’s the going rate for logo design/kallah makeup/sushi platters/(insert your offering here)?”
Often, the answer could be anywhere from $5 to $5,000, depending on your “market segment.” Every market, whether it’s for glatt hot dogs or babysitting, can be divided (very simplistically) into four basic segments:
- Bargain: Cheapest price is the only criteria.
- Value: Willing to pay more for a quality and service, while remaining price conscious.
- Quality: Price is one factor among many: reputation, convenience, service, what the neighbors think, etc.
- Luxury: Money is no object. All they want is the best – or what’s perceived as the best.
New businesses commonly start in the lower price brackets. But once you have experience under your belt, there’s no need to stay there. If you’re hitting a brick wall in improving your earnings, this is often a sign that you need a skip up to the next market segment.
Take a (Price) Hike
A few years ago, an established catering company was losing so much business to increasing competition that it was on the verge of going belly up. Instead of closing shop, the owners revamped their menu and changed their name from “Friedman’s Kosher Catering” to “La Casa.”
Now ask yourself: What do you expect from “Friedman’s Kosher Catering” and what do you expect from “La Casa”? Would you be surprised if La Casa’s prices were 40% higher than Friedman’s? The name alone conjures up a different end-product. If you’re one of the many people who want that kind of catering for your upcoming simcha, you’ll call La Casa, even though you expect them to charge more. This is the power of a “brand promise”.
Before you double your prices, you need to figure out: what does my brand promise? Do you say, “My name is Shayna and I do special ed tutoring,” or do you say, “At Kriyah Success, we help your son be mainstreamed into the yeshiva of your choice.” The stronger your promise, the easier it will be to give yourself a price hike.
How to Raise Your Rates: 4 Methods
- The Blanket Raise: Without warning, you simply hike up all your prices. You will almost certainly lose clients, but if you start earning 30% more per hour, losing 30% of your business just means working less to earn the same money. A blanket raise can work if you really have a solid clientele and regularly turn people away.
- The Grace Period: A gentler option is to tell your clients that you’ve raised your prices but, due to their loyalty, you’re offering them your old prices for another three months or three purchases. By the time the grace period ends, most clients will adjust to the price increase.
- The Introductory Discount: If you’re concerned a price hike will hamper your ability to attract new clients, tell your prospects your new prices but also offer them an X% discount for the first session, or month, or purchase. During the introductory period, make sure to really deliver the goods, and it’s unlikely that any of your clients will leave you when the scheduled price rise rolls around.
- Tiered Pricing: Offer at least three tiers for any product or service by packaging frequently-requested extras into middle and higher tiers. For example, for Shayna the special ed tutor: her basic level is a weekly hour of tutoring; her mid level includes a monthly progress report and parent consultation; her top level also includes working with the child’s teacher to implement the learning strategy in the classroom. With tiered pricing, you start getting paid for all the “hidden extras” you were previously giving away for free. This is an excellent way to raise prices for clients who can afford it, while keeping low-end clients on an affordable pay-scale.
Easy in Theory; Hard in Reality
It’s normal to feel nervous about raising your prices. Be prepared to explain yourself, without apologizing. Here’s a good way to phrase it: “I’ve updated my pricing. It’s been a while since I changed my prices and meanwhile expenses have increased and quality has improved.”
You can also try the sandwich approach — give praise/thanks, break the news, and close with praise/thanks. “It’s such a pleasure to work with clients like you. I recently reassessed my businesses and realize I need to raise my prices. Because you’re one of my favorite clients, I am going to keep you at the old fee rate for one more month before going up to the new rates.”
If you’re nervous, begin with one customer at a time. Miriam the graphic designer started by telling her increased prices to only certain new prospects. Most barely blinked, which helped her gain confidence. A few months later, when she saw how much her “take home” had increased, she wished she had upped her rates sooner.
4 Signs You Must Raise Your Prices
According to research by Intuit Canada, close to 30% of all small business are undercharging. How do you know if you’re among them? Here are four classic signs:
- You turn clients away due to lack of capacity
- You’re at maximum capacity, but not making a living
- Inferior competitors charge more than you
- You’re burned out from slaving away 24/6 in your “non-profit organization.”
Don’t give up – just raise your rates.
Thanks to Mishpacha magazine for permission to reprint this column, which first appeared in Family First (#446, June 17, 2015). Major credit goes to my Mishpacha editors Bassi Gruen and Sarah Glazer.
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