Episode 85: The Dreaded Price Hike
How do you know when to raise your prices? Quantitatively and qualitatively, what signs should you look for?
Summary
Nick and Kai walk through the signals that tell you it’s time to raise your rates: closing 100% of your deals, colleagues saying you’re undercharging, major client wins, a growing mailing list. Nick makes the case for pricing at the high end of the market and explains the psychology behind why higher prices make clients assume higher returns. The episode also covers how to handle existing retainer clients when your prices go up, and a tactic for raising your effective hourly rate without changing what you advertise.
Highlights
- Closing 100% of your deals is a warning sign, not a win. Kai treats it as evidence he’s undercharging.
- Nick prices at the high end of the market on purpose. A prospect who sees a $10,000/month price assumes a $20–30k return; the same prospect seeing $300/month does the math and decides it’s not worth the effort. Same scope, different price, different perceived value.
- Nick never raises rates on existing retainer clients. Some clients from four years ago pay a quarter of what current clients pay for the same work.
- For one-off services, Nick raises prices freely. If a returning client asks why the price tripled, he points to case studies, talks, and wins, then leaves it at: buy, don’t buy, don’t care.
- Successfully raising a retainer rate outright is, in Nick’s words, ‘one in a million.’ The realistic move is bundling new scope into a new proposal at a higher total price.
- Nick references Alan Weiss’s rule: fire 10–20% of clients every year. Their budget no longer fits your rates, so letting them go frees slots for clients who can afford you.
- Nick asks off-boarding clients what was most and least valuable, then cuts the low-value parts from the service offering. Same advertised price, less scope, less time to deliver: the effective hourly rate goes up without touching the sales page.
Read the transcript
I have horrible news, Kai.
Starting at the end of this sentence, the About Page for Make Money Online is going to cost $50.
Dear listeners, please hit pause right now, rewind the episode by the About page before this announcement.
I already hiked the price of the about page.
I’m not sure if that’s how time works, even.
I determined that now that we’ve recorded so many episodes, we’re famous and important. And so we should be charging what we’re worth. And so I 10x the price of the about page because I’m 10x better now.
How do you know? What is your value in the marketplace, or what you could or should charge for a service?
I think it’s reflected back to me, and I often ignore the signs quite a bit. I plug my ears and yell a lot about it. But here’s some signs. My mailing list is growing substantially. I’m getting invitations to speak at conferences or on podcasts or guest blog posts or whatever have you. People are asking me for free calls, which we’ve talked about in the past. I tell people my rate and they don’t balk immediately. Like I close 100% of my deals. That’s a negative sign. Um what else? Uh I talk to people and uh in my industry and I tell them my rate and they are surprised, unpleasantly so, that I am charging so little. Sometimes it takes intervention from friends to hike the rates. And prices not only account for what you’re doing in your business But also for the info products that you’re selling, the one-off services that you’re offering, that sort of stuff. It’s everything in your product ladder. The more. Proven your offerings get when you start to get like really serious outcomes and big wins, and you can throw social proof on the marketing page, that’s a sign that you should be right raising your prices. Does that answer? That kind of begins to give some contours to this, I think.
Yeah, let me just summarize them. So we have authority. You’re getting recognized in your industry. That’s a sign you should raise your rates. You have colleagues or people in your industry saying, your rates seem kind of low. That’s a negative sign and a sign that you should raise your rates. You have launching a product like a book. That’s a sign you should raise your rates because it connects to authority. You have substantial wins for clients or on projects that raise your stature, raise your status. Oh, hey, I was able to help Groupon triple their conversion rate. Excellent. You should probably charge more at that point. So those are four major areas to look at.
Yeah, I think that those are all the big areas. Sometimes I’m looking at other market rates. Take a look at other people’s sites, they’ll actually put it online and I’ll say, Okay, well, I’m undervaluing myself based on what I’ve done. That’s kind of a fifth thing, but it’s something that I do so rarely that it I don’t know if it factors into it. Do you do that?
I occasionally do. It’s hard. I found it hard to identify competitor or Not even competitor, but just other people in the same industry providing similar service rates, because it’s not everyone who’s adopted the productized service methodology where you’re advertising what your price is on the sales page and making it really easy for people to know what the price for a service is. So unless I go through a proposal song and dance with another agency or another provider, it’s typically hard for me to understand or even know what a competitor or another agency’s prices are. So there’s a bit of clou uh fog of war around pricing there. If I get any data related to what a competitor is charging, I’ll evaluate that. I like pricing myself towards the higher end of the market. I think there is a large psychological aspect. Related to what you’re charging. And if you’re charging too little, people will say, oh, this must be a low-quality service. It is the Discount house brand service offering, where if you’re charging a premium offering even for a premium price, even for the same scope of work and service offering. Because you’re confident enough to charge a higher amount, people will see it as being a better service, even if it’s the same exact delivery. And so I like pricing myself towards the higher end of the market as a premium service offering because of that halo effect, because of that carryover effect. If you’re confident enough to be charging four figures every month for service XYZ, people are going to say, okay, this must be a valuable service. And then your job becomes demonstrating that value to them. But If you’re only charging three figures a month for that same service, people might look at it and say, eh, that’s not a lot of money. If it’s only $300 a month or $500 a month, I probably might get like a 2x or a 3x return out of it. That’d be $1,000. That’s not worth it. But if you’re charging $3,000 or $4,000 or $10,000 for it, well, they’re going to apply that same math and same logic and say, oh, well, that’s $10,000 and get $20,000 or $30,000 of qualitative and quantitative value back. that really seems worth it. So by pricing yourself higher, I think it communicates to prospects that you’re going to be delivering a higher value return for them. And so I personally like pricing myself towards the higher end of the market for those reasons.
Yeah, I think that makes a lot of sense. And I mean, you always want to position yourself as a luxury good. We’ve talked quite a bit about how that factors in on the podcast in the past. Should you care about your competitors’ rates? Is that just kind of what I’m hearing is you probably just want to peg it at the high end of what your competitors are offering and then eventually Reputation will kind of almost take care of itself. Is that kind of what I’m hearing out of this?
Yeah, that’s in the short term, very much so. Pig yourself at the higher end of the market. Let the market shake itself out, see what happens. Don’t worry too much about your competitors, but do keep an eye on your industry overall because if you notice, like let’s take A-B testing. If we jump forward a year from now, it’s July 2018, and it’s very, very easy to hire somebody to do A-B testing on your website for $200 a month. There has been a cataclysmic shift in the industry. People are no longer valuing the service offering, valuing the outcomes they could generate highly. Well, we’ll want to either switch service offerings or switch how we’re presenting this service offering because we’re just so out of sync with what the industry is valuing this at. So I think We could see this in the web development industry. We could see it with the WordPress industry, where we had a premium for service delivery shifting to a commoditized service and a lower average price for a service offering. So, I think it’s important not to necessarily look at your competitors, but look at the industry overall or look at a large sampling of people who are providing a similar service offering just to understand. How is the market reacting to the perceived value of what you have for sale?
I think that makes a lot of sense. It’s kind of a matter of Assessing what the market is doing broadly and then figuring out a way to respond to that. It’s easy when you hike prices on info products because you’ve grandfathered old people in, you’re not recharging them for anything. It’s totally fine. What happens when you hike your prices and you have old clients? Like what do you do with consulting services around that?
So for clients that are on retainer type engagements, I lock in their price once they sign that contract and I never raise it. I have Clients who have been with me for four years now who are paying a quarter of what current clients are for the same service offering, because I’ve had those authority bumps. I’ve had significant wins and I’ve raised the public-facing price for the service offering over time. And People are buying it. But as a way of thanking my past clients and saying, hey, I really appreciate you deciding to work with me two, three, four, five years ago, I keep that price locked in. But that’s for a recurring offering. For one-off offerings, I feel no problem and no issues with raising that price. And if somebody, say, bought a one-off service offering, like you have Revise Express. Uh, if somebody bought Revised Express, if I was selling Revised Express for $500 and somebody bought it, and then over a six to twelve-month period, I raised the price to $1,500, and that same person comes by again and says, Hey, I’d love to buy Revised Express a second time. It was 500 last time. What happened? I’d politely explain that, you know, due to reasons A, B, and C, because of the authority, because I just gave this talk, because of the significant wins, because of these case studies, because of these testimonials, I’ve raised the price. Because the value obviously is higher than what I was charging. Buy, don’t buy, don’t care. So, for recurring offerings or retainer-type offerings, I’ll lock in the rate and not raise it. For one-off offerings, I will raise that price. And if a client comes around to purchase the second, a third, or a fourth time, I’ll explain: hey, the price has gone up. Just like prices go up in the real world. You might be looking at a product and then go back two weeks later and oh, it costs more because the store raised the prices. For one-off service offerings, I think that’s perfectly fine. The challenge is often I see expressed around: hey, I have clients that I brought on a few years ago. I was charging very, very low rates back then. I want to charge not very low rates now. How could I improve what I’m earning from these clients? And I’ve never once, very, very rarely, I shouldn’t say never, but it’s one in a million where I’ve seen a consultant. Be successful in raising the price for a client who signed on to a retainer offering. More often than not, what I see happen is a consultant proposed a new scope of work, including new service offerings, bundling in the older service offerings at a higher price point and saying, hey, great, you know. Here’s some additional things I could do for you. Here’s the new price quote, and raising the value of the client that way. It’s not perfect because you’re mixing in, adding in new service offerings with raising the price. You’re somewhere in the middle of where you were before and where you are now, but it’s better than nothing. The other path forward, I think, is what Alan Weiss recommends: where you should be firing 10 to 20 percent of your clients every year just because. They aren’t a fit for you, your positioning has evolved, your stature and status in the marketplace has evolved, your prices have gone up, and they can’t afford you anymore. So, by letting them go, you free up slots for clients who can afford you. But it’s still not a perfect answer.
Yeah, I mean, there’s a lot of fear in it, right? I think when people ask, should I hike my rates on my old clients? Like, they’re just afraid of losing those old clients, even though they’re never that terribly excited in doing it in the first place. And they know better. And like the first few times you do that, it’s always like a huge panic festival. And so it becomes a lot of becomes a frequently asked question among among people who run this playbook, right? And I don’t know if it’s useful to be answering. Like I my My hunch is that there’s something buried within that that says you know you need to part ways with this client, and you’re afraid of doing it because you’ve come to rely on them. And that’s a thing to get over, man. That’s not something that you want to be like making the cornerstone of your business. That’s not thinking about your business like it is a business. You’re thinking about it like you still have a job. Hopefully, if you are listening to this podcast, you don’t. You have a business. That job is to serve the business.
And so, so. I think there’s always opportunity to raise prices. There’s always opportunity to identify new ways to add value to your service offerings. As you increase value, increase the price and lock step with that value increase. And you should always be looking at the different service offerings you have available. One-off, productized, pure products recurring, and saying, well, what aspects of the service offering do clients find the most valuable? What do they find the least valuable? As an exercise, I will often Ask clients this as part of my off-boarding process. What did you enjoy most about our engagement? What was the most valuable part? What wasn’t that valuable and we could have skipped over? And in aggregate, I’ll look at this information, review their answers, and better understand: okay, so for the service offering, I’m offering A through F. A, B, and C are super valuable. Nobody really cares about D, E, and F. Oh, I’m just going to lop DE and F off the next proposal or off of the sales page and see if people are still interested. And I’ve iterated on my service offerings multiple times here. And I think we get into an interesting and more advanced area here where If we’re charging the same amount for a service, but we’ve cut the scope of what we’re delivering by half so it doesn’t take as much time. we’ve effectively doubled our effective hourly rate here. So it still is advertised as the same price, but it’s less effort for us to deliver. It takes less time for us to deliver. The client still gets the most valuable parts of the service offering. In a sense, everybody wins there. So maybe a good solution is to be doing market research, doing follow-up. Doing customer interviews with past clients and understanding what they do value and what they don’t value, so you can continually optimize your service offerings to be as leveraged as Highly valuable as possible for your business, making the most income, but taking the least amount of time.