Whether you’re just starting out or you’ve been running your own business for a long time, there’s no question that rates can be a tricky topic. When you’re new to an industry, you have to figure out average industry rates, and from there, establish a rate you’re comfortable with.
In the interest of getting new business, many small business owners may undercharge for their services, especially at first. While this may make sense for you in the short term, you should charge what you deserve from the start.
Increasing business rates annually is standard practice, and it’s a must if you want to grow your business. But that doesn’t mean it’s an easy subject to broach with clients. However, if you have solid reasoning for raising your rates, it can make the conversation easier. Here are five signs it’s time to raise your rates.
1. You’ve had the same rates for over a year.
If it’s been at least a year since you’ve increased your rates, evaluate whether an increase is the right move for your business. Do your research and find out what standard rates are across your industry. If you decide to raise your rates based on that research, you may want to consider building an annual rate increase into your client policy. That way it’s not a surprise and your clients will know to expect it.
2. You know your competitors are charging more.
Know where you stand among the competition. Of course you want to be reasonable, but you also need to make sure your rates are competitive with the rest of the market. While it’s true that lower rates might win you clients, if you’re known for having the lowest rates, clients may undervalue your services.
3. You’re in demand.
If you’re having trouble keeping up with your current workload, whether it’s too many client demands or a backlog of orders, you know your services or products are sought after. This means the demand is there, and it’s a good sign that clients will be open to a rate increase.
4. Your operational costs have increased.
Regardless of the industry you’re in, chances are your business expenses will increase on a consistent basis. To maintain a healthy profit margin, you need to raise your rates so you have room in your budget for increased expenses. Manage your budget closely to identify changing costs and determine if you need to raise your rates to cover them.
5. You provide a unique product or service.
If you’re selling a product or service that’s unique to the market and hard to find elsewhere, you’re in a good position to raise your rate. Research the competition to see if you have a distinct value proposition. If you do, you may be able to charge a higher rate.
Test the waters.
If you’re apprehensive about raising your rate with existing clients, you may want to test a higher rate with prospective clients to see if they’re receptive. If you’re able to land new business with a higher rate, you may want to consider a global rate increase.