There are three things that you must consider in regards to raising your prices.
Learn about what effective pricing can have on your profit. Different pricing levels can change the amount of service delivery that you're capable of, and also help to communicate the value of your service to your customers.
Learn how to use the value equation to increase your prices. Get away from competing on price and focus on value, by considering the different price levers
Learn how to communicate price changes. Communicate price changes to your customers and how to set up your pricing process.
What effect can pricing have on your profit?
For those who feel uncomfortable about this: have you seen your tech stack increase in price? What about your private health cover? And maybe even your nail technician or massage therapist? Everything around is increasing due to inflation, and your business is not a charity. I've got personal trainers and studio owners as clients who ask, “you think I can raise my prices?”, but please hold your horses and let's go through all of this.
Raising prices is one strategy I use often to help people improve their margins and ultimately to improve their profits. The thing is, how are you going to cover overheads and the cost of your businesses and pay yourself enough to eat dinner and have accommodation if you’re trying so hard to do “all the things” to help your clients, but you’re unable to keep your head above the water financially? So this is really really important to understand. At the end of the day profit is the reason that you're in business. If you're not earning enough profit, you might as well close your business and do something else. It's that simple. Profit is what we want to be aiming to get.
Profit sounds icky to some people but profit is what you pay yourself a wage with, and when a lot of people are starting fresh they are doing a lot of hours to break even in their business. There's a saying I love that “turnover is vanity. Profit is sanity, and cash is king”. So you need to learn to live by those principles. And profit now is sanity, profits, the reason you're in business, not sales, not sales for themselves. And for the sake of getting more sales to get more sales at the expense of profit it can have a bad and very negative impact on your business, which we'll kind of go through today. And I'll show you what some of that negative impact can be actually still good because we need capital for business loans or grants too. But ultimately, if you're not making a profit, you might as well not be in business and you'll run out of cash as well if you don't have profit. So there's other things that affect cash as well beyond what we're discussing today. But ultimately not making a profit you'll run out of cash anyway.
Most business owners aren't making enough profit and they need to look at ways to improve their profit. I normally make sure they've got control of their their cash flow first. That's making sure we calculate break-even's, budget. We know what our costs are. We've got sales forecast, we've got a cash flow forecasts, and we're making sure we're we're managing our cash properly. Also making sure that the cost of advertising, ROI of advertising, and the amount allocated for paying the owner is fair. Also making sense of the cost of delivering the session compared to the cash coming in for the session and doing an analysis of poorer performing slots. This gets more cloudy for people prior to this kind of work if they haven’t been paying themselves as if they are a staff member instructing the sessions etc. If the person is not across all of this and not set up for correct tax reporting, I have a fitness based accountant I recommend who makes numbers easy to understand and helps you future plan for your business.
Now the first thing I want to discuss here and I'll probably work through or smash this myth is that lower prices equals higher sales equals higher profits. That's a mindset people have, when they have that mindset that often gets sucked into a price war. So it's not to cut their prices to win business. That's a strategy that can work for big businesses, but not for 99.9% of small business owners. That can only really work if you've got a large business with a large customer base with the power to have the economies of scale to have loss leaders to compete with other businesses until they cannot compete anymore.
Now what I would say though, is is I've been doing this type of coaching for over 16 years and every time I've increased, I can't think of a time where we've lost many customers. Most of the time customers don't bat an eyelid. We normally go for around a 10% increase.
Here's how I do it
Choose a date and any new customer after that date is now on the new pricing. No need for them to ever know differently
Communicate with current customers well and show them some of the things that make the experience of training with you more valuable:
are you increasing your skillset? Communicate that.
Are you trying to increase your offering for your clients? Tell them the vision.
Are overheads increasing? Let them know.
Tell them what you've already done since starting (added tech? added equipment?)
Be a human: tell clients that if the extra $10 a week makes them unable to buy groceries, tell them to message you to discuss how you can help them better.
Empathize with clients and tell them that no one likes increasing prices, especially not you. However you have made a commitment to being the most valuable personal trainer and service out there, and you won't be able to do that with your current prices. Ask "would you want me to go back on my commitment to you?"
Make this a video and a handwritten letter to simultaneously share the information without backlash. I once had poor advice to write it as a social media post for my clients. As a professional social media adviser, don't do that if you'd like clients to stick around!
From personal experience, clients have no idea how much an overhead is or that you pay tax. To illustrate that, I asked clients to guess how much my set up cost in my boutique studio (the correct answer is over $35k). They answered $1-2k. As in 2000 max. Clients thought my software was free (it costs more depending how many clients). Clients forget you are paying rent.
All of this to say, they don't understand that your business cannot run without profit. They think you take home the full amount that they give you.
So the longer you spend on breaking even and covering expenses out of your own pocket, the longer you are making them believe you run a feasible business.
In the value equation, people will pay in money the cost that they believe is reasonable for the level of value that they get. The value that they get is perceived by how much your provide in terms of solving their problems. See below for an illustration.
So if you know how to make the bottom of the equation less, and the top of the equation more, then people will attribute more value to the item, and therefore will be more ok with you charging more.
Source: Acquisition.com
Now let me add to this one more thing. The first part of the equation is also influenced by the level of expertise you have. If you have a 4/10 skills in the ability that is required for the problem, then the person may have less perceived likelihood of achievement for someone who already feels like they have 3/10 skills to achieve it themselves. If your skillset is 8/10 then you open up the value equation to more than just people who are completely new in knowing the area. That is where skill-set come in (for your communication of raising prices above).
Skill-set is one level, but having more skillset addresses:
Perceived likelihood of achievement due to having the experience and knowledge combined
Knowing with confidence you can get the dream outcome due to the skills you've learned
Reducing the time delay with more time doing the "thing" or achieving the outcome and being able to communicate that
being able to reduce the effort and sacrifice by addressing common obstacles, like suggesting menu items for someone trying to stick to a diet.
Interpersonal skill-set also means you will have more rapport and more charisma to be able to increase the persons belief in your ability, due to your own confidence in what you know!
Hope this has been helpful for giving you guidance on how to raise prices.
Reach out if you'd like more help or if you'd like to talk about what skill-set items you'd like to work on.