Smarter Pricing Strategies: Restructuring Your Packages

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!