Most of the time, I’m discussing ways to increase your revenues and profits that have to do with marketing. However, if you already have a stable of clients, then there is an often overlooked method for increasing profitability: Raise your rates.
I’m sure at least one person’s jaw just dropped out their in tax-land. “I can’t raise my rates,” I hear you say. “I’ll lose all my clients, nobody will pay higher rates in this economy,” you exclaim.
In reality, you couldn’t be more wrong.
First, when was the last time you DID raise your rates? If you never have, or it’s been more than a couple years, then you’re long overdue anyway.
Second, people will, and consistently DO, pay higher fees for the services they use. People understand that the cost of doing business goes up. Your cost of living goes up, your payroll increases. Inflation is part of economic growth (and the economy is growing, just slower).
Third, if you take a serious look at your client base, you will most likely find that two instances of the Pareto Principle are in effect at your firm. The Pareto Principle, also known as the 80/20 rule, states that roughly 80% of your results come from 20% of your efforts. What this means in your practice is that roughly 80% of your profits probably come from just 20% of your clients. Similarly, 80% of your headaches probably come from 20% or less of your clients.
It’s time to critically analyze where your revenues are coming from, on a client by client basis. It’s also time to look at your headache clients, the ones that piss you off the most, take advantage of you the most, etc. One of the effects of raising your rates is that these clients tend to be the ones that go away, not the ones that are your best clients.
The relationship you have with your best clients will weather a rate increase. In fact, it’s not uncommon for your best clients to tell you they’re surprised you haven’t raised rates sooner, given the level of service you provide them. Your bad clients, on the other hand, will take their headache elsewhere, which should be just fine by you, as these clients tend to consume more of your resources than they produce.
Bottom line: Analyze your clients down to the dollars they generate and the resources in your practice that they consume. Overtly fire your unprofitable clients by sending them letters informing them that, since you are losing money on them, you need to charge them more. Make it a significant price increase, such as 50% or even double. If they pay it, then good for you. If they don’t, then good for you.
For the rest of your clients, implement a 10% price increase on all your services. As mentioned above, they’ll understand. And if not, then they would have left anyway when you eventually had to raise prices anyway.
For new clients, set your pricing at a slight premium for your marketplace. Don’t take on new clients that are going to become headache clients because you are the cheapest guy in town. Become the top of the food chain by charging premium prices, and offering premium service.