Take a look at the leaders in your industry. How many of them are earning significantly more than you are?

For example, if you’re a blog post writer earning $5 per article, you might find writers you respect who are earning $30 per article.

How do they do it?

Simple. They have increased their perceived value. Their clients believe they are worth the extra money. You can increase your perceived value, too.

Make sure you are doing top notch work

If you’re a writer, your content must be professionally researched, written and edited — and delivered on time. If you are a product seller, make sure your stock is top of the line.

Exceed quality standards

Compare your work to that of your industry leaders and then take steps to make match or exceed their quality. Now, that doesn’t mean copy them or change everything to make your business just like theirs. But if, for example, their fabrics are 100 percent organic, and you’re serving the same market, you may want to find material of the same quality. Or if the leading web designer in your market produces high quality websites, you should be producing high quality as well.

Become an industry expert

Once you have quality nailed down, you need to help others understand that you know what you’re doing. You can do this by becoming an industry expert.

Some of my clients have trouble with the idea of being considered an expert. They spent every day providing their products or services, so they know more about what they do than the average person. This makes those clients experts in their industry.

Yes, there are people in the industry with more expertise, more education and more experience. But that doesn’t make my clients any less experts in their own right.

Keep this in mind and take steps to establish your expertise.

Once you’re working towards becoming an expert, you’ll want to keep your strategy positive…

Quadruple all your prices and tell your clients to like it or lump it! No, that’s probably not the best way to roll out your price changing scheme… But I’m sure it’s a great way to make sure you lose all your clients! We’ll talk more later this week about how to share your new pricing strategy with your clients.

But for today, let’s talk about how you’re going to create that new strategy.

Basic price increase per product or service

I’ve discussed why you need to raise your prices, guided you through evaluating your current structure and showed you the hidden costs that you may not have already factored into your current pricing. But what do you do with all that information?

First, you need to make sure you understand how much it actually costs to produce your product or service. Second, you need to figure out how much profit you need to earn.

Profit is the total amount you earn for your product or service, minus the costs associated with producing it.

So, if you need to earn $3,000 a month in profit, and the widgets you are selling cost you $30 each to produce (including hidden costs) and you’re charging $60 for them, how many products are you going to need to sell each month? No worries, I’m not going to make you do math…

You’ll need to sell 100 products. Now, let’s say it takes you 1 hour to product each product and you have 20 productive hours per week. Is this doable? Actually, no. In a normal 4-week month, you’ll be short 5 hours. The solution?

Raise your prices just $10 and you only need to make 75 product, which you can accomplish in a little more than 18 hours. Viola!

Understanding what you need to product and whether or not it is actually doable can help you control not only your prices but also your quality of living.

Revising your packages

Not all price increases are as straight forward.

Some of my clients have packages in which several services are bundled and a discount is given for ordering a set number of hours per month and paying in advance on a retainer basis.

While in some cases factoring in hidden costs and then raising the package prices will be sufficient, in other cases, you’ll need to restructure the packages themselves.

For example, one of my clients offered writing services in packages of so many articles for a set price per month.

So, she might have sold 4 articles a month for $48. If she wrote those articles herself, she could knock out all four in about an hour, making $48. Factoring in hidden costs, most of that money was profit since she had long-standing relationships with the clients.

The problem became a matter of scale. When she reached 50 clients, she couldn’t write all the articles herself. So she outsourced.

Her ghostwriter wrote 4 articles for $10 each, leaving my client with only $8. Multiply that by 50 clients and she was paying out $2,000 to the ghostwriter — and still having to edit the work produced by the writers. So while she earned $1,600 on the articles, she also spent 25 hours editing the articles and another 10 hours rewriting articles that the clients didn’t like. The she hired an assistant to take care of communicating with the angry clients who weren’t happy with the quality of writing.  As you can see, that client quickly started losing money.

The point?

It’s better to charge more money and have fewer clients.

Instead, it’s better for her to decide that she wants to write for 10 hours per week and that she wants to earn $5,000 per month. The client knows she can write 4 articles in one hour. She she can produce 40 articles a week, or 160 articles in a four-week month. Now, we see that if she charges $125 for her four-article package, she can make her goal with 40 four-article-per-month clients.

Even better, she can sell more articles per client each month and reduce the customer service hours she spends. So, instead of selling each client 4 articles at $125, she can sell 8 articles for $250, or 16 for $500. At 16 articles per client, she’d only need 10 clients. Much easier to manage!

And you know what they say: It’s easier to sell to an existing client…

Of course, the question is, can you pull off charging higher fees? Yes! We’ll talk about how later this week…

But tomorrow, we’ll talk about some ways that you can raise your prices — without giving your clients a heart attack!

We left off yesterday with a list of steps you must take in order to develop an effective pricing strategy for your small business. Today, we’re going to take a look at the first step: Evaluating your current pricing structure.

Some people start their price re-evaluation efforts by looking at the competition and then trying to match or beat their prices. I suggest though that you’re ignoring the biggest problem you have when you employ that technique.

The problem?

Chances are, you are considering raising your prices because your current pricing isn’t working for you.

Perhaps you’ve crunched some numbers and realized you’re losing money on every project you do. Or maybe you’ve realized that after all the time you put into a project or producing a product, you’re only making $3 an hour — and no one is giving you tips.

Over time, this can wear you out, lead to resentment and burnout.

It’s best you plan a course and take action.

The evaluation process

I recommend you plan out your evaluation process and follow through with it in order to develop an accurate picture of where your business is.

Here are a list of steps to take:

1. Calculate the costs of producing your product or service
2. Survey your existing customers
3. Research your target market
4. Then research your competition

Calculating Your Costs

Whether you’re producing a product or providing services, you have to spend time or money. When you sell said product or service, you need to be be compensated for both. For example, if you’re sewing clothing, not only do you need to be reimbursed for the materials you’ve purchased, but also for the time you spent creating the item.

And then there are other not so obvious costs, like the electricity that powers your office, hardware such as computers and software, sewing machines and paint brushes. You’ve also got marketing and advertising costs, as well as other hidden costs that go into running a business.

You’ll need to take all this into consideration and then compare your findings with what you’re currently charging.

One of my coaching clients sold a 10 hour service package to a client — and later realized that she’d barely make a profit on the package if she did the work herself, and lose money if she outsourced the project.

After listening to her, I realized she’d failed to take into consideration costs such as time spent emailing with the client, the actual time it took her to complete the project, as opposed to the ideal amount of time, and outsourcing the parts of the task that she is not efficient at completing.

You may find yourself in a similar situation once you sit down and do the math.

Survey your customers

Once you have an idea of how much you may need to raise your prices, I recommend you survey your existing clients. You can email them a written survey, or just talk to them on the phone. Find out how they feel about your existing pricing structure.

That said you also need to evaluate your customers themselves. If you’ve marketed yourself as the cheapest shop in town, chances are, your customers are all going to want your prices to go down, not up.

Research your target market

Just a side-note here: If your customers are all cheapskates,  you’re going to need to re-evaluate your marketing strategy as well and start targeting those people who want quality, not cheap. That means finding those people who want and need your services or products and who are willing to pay for them. This calls for target market research, which you can read about here.

So, find those clients who are ideal, the ones you value your expertise and what you provide. Ask them about your pricing structure. Chances are, if you’re pricing is too low, they’ll be the ones who’ll know that they’re getting a steal.

Research your competition

If you’ve already looked at your competition, that’s great! But before you pat yourself on the back and move along, let’s take a look at your research.

Are you comparing apples to apples, or apples to oranges?

A client of mine recently showed me a potential competitor who is charging exponentially more than my client is for her services. My client was a little flabbergasted at this, and could not imagine who could be paying the competitor so much.

Therein lies the rub.

First, is anyone really paying that competitor? I can put on my website that I charge $1 million for a website, but is anyone going to really pay that? (For the record, several years ago, I read an article written by a man who was a member of an early internet startup — before the dot com bust of the 90s. Back then, his company was charging that much money to build and maintain websites. He left the company and started his own business charging much less — but still making plenty of money.) Anyway…

Second, are your markets the same? If you’re targeting work at home moms, you’re not going to be able to charge as much as the service provider who is targeting Fortune 500 corporations.

So make sure the competitors you’re researching are actual competitors.

Finally…

Once you’ve completed your evaluation process, take a break. I’m taking the weekend off to relax with  my family. You should too. Well start again next week taking a closer look at those hidden costs. Then you can make some final adjustments to your proposed price hike…