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When to Change Your Prices?

Lesson 7 from: Value Pricing & Business Models for Creative Entrepreneurs

Tara McMullin

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Lesson Info

7. When to Change Your Prices?

Lesson Info

When to Change Your Prices?

So like I said, I asked a whole bunch of different people when they know is the right time to raise prices, and most of these people are Kick Start Labs members. My friend Ali Shapiro, who's the creator of Truce with Food said, "When I add to my skill set and experience, "then I know I'm adding more value." So Ali has really super-high values for education, curiosity, learning, in fact, she went and did a master's degree on top of the coach training that she did so that she felt super, super good about her Truce with Food program. So that she knew she was dotting all her Is and crossing all her Ts in terms of curriculum design and adult learning and psychology. So when she completed that, she raised her prices. So that was a really one-to-one correlation for her. She literally got the piece of paper that said, "I've added to my skill set and experience," and she decided it was time to raise her prices. So, what are you doing to add to your skill set and experience? Is it just time in b...

usiness? 'Cause, hey, that's cool, stick with that and make sure you're reflecting that in your prices, but maybe you're doing other things. Maybe you're doing a new training program. Maybe you're a photographer who's taking lots of CreativeLive classes and because you've learned this skill and this skill and this skill, you know you can charge more now. You know you're delivering a better product. You're delivering more value. That's a good time to raise your prices. Paul Jarvis, who's the author of "Everything I Know" and also a web designer says he changes his prices, "When I'm booked out more than three months in advance." We mentioned that earlier, we want to be accessible, right? We want to be able to deliver our services. We don't wanna be constantly saying no because of supply and demand. And one way we can get past that, or get through that, really, is raising our prices so that there is less demand. Sometimes you want there to be less demand, and raising your prices will do that. And as I mentioned in the last segment, that can also backfire and you can get more demand. But that's a good problem, that's a quality problem to have. We can discuss that. Angela Pointon, who's the founder of Steel Toe Images said, "When the clients I want to attract "are willing to spend more." How do you know if they're willing to spend more? Maybe when you quote them the project price they say, "Oh, really? Is that it?" That's a good time to raise your prices. If you know that last time they booked, she's a photographer, if last time they booked with a photographer, they paid X amount, because maybe she's a friend of yours or he's a friend of yours and you've been charging less than that. That's a good time to know the clients you want to attract are spending more. Raise your prices. Jacquette Timmons, who's the author of "Financial Intimacy" and the creator of the Financial Intimacy Lounge says, "When they need to tell a different story "to my prospects, my clients," and this is the important part, this is why I included this one, "and me". Do you need to raise your prices to tell a different story to yourself? Raising my prices is often about that. It's about holding myself to a higher standard. It's about getting more, digging deeper and getting more out of myself. It's about forming deeper relationships with the clients that I have, with the companies that I work with. So when I need to tell a different story to myself, when Jacquette needs to tell a different story to herself, that's a great time to raise prices as well. Leslie Briar Harvey, founder of Pure Caresses says, "When the work feels heavy. "Like it's a burden instead of a joy." You know, a lot of people say to me, "I've been doing this kind of work "for these kind of clients and I just really resent it." When you have a sale come through and you say, "Oh no, not again." That's a good indicator you need to raise your prices. That's bad. You wanna feel like every sale is a joy. You wanna feel like every sale is a joy. And if your prices aren't sustainable, if they're not telling the right story, if they're not attracting the people, if they're not reflecting the value that you offer, they'll feel heavy instead of like a joy. Couple more, one from Rene Shoemaker, who's a fine artist. She says, "When people cut a check "for more than I've asked for." Love when that happens. Anja Schuetz, founder of the Open Hand Cafe, formerly of the Hague, soon of Berlin, says, "When I've outgrown them and they don't inspire me anymore." You change your prices when you've outgrown them, when they don't inspire you. I love that idea, I love the idea of my prices inspiring me, it's similar to what Jacquette said. I want to feel like when I get paid, hot damn, is that awesome. I am so inspired to do my best work. If your prices aren't doing that for you, it's time to change them. It's again, similar to what I said earlier about when you're getting paid, or when you associate time with money, it's really hard to make time to do the bigger work, to go there creatively, to dig deep and find something new, to come up with a new idea. So make sure your prices are such that they are constantly inspiring you to find out how far you can go with your creativity, with your productivity, with what value it is that you're creating. All right. It's that time again, I need everybody to share with me. Is it time to raise or lower your prices? This could be a simple yes or no, or feel free to tell us more, get on Twitter, get in the chat room, it's #taralive @taragentile @creativeLIVE. Let me know, is it time to raise or lower your prices? Let's go to the studio audience. First, Robin, is it time to raise or lower your prices? We actually raised our prices for this year. M-hmm (affirmative) So we feel pretty good about that. Awesome. Yeah. So it was time to raise your prices? It was time. What we found was that we were providing a lot of content. M-hmm (affirmative) And we needed to value that. Awesome. So, yeah. Great. Shawna? Yes. (laughing) Yes, I just upped the price quite substantially, almost double. Excellent. For my prenatal coaching package. And I'm looking at not raising the price of my birth package but paring down what I offer within that at the same price point, so essentially it will be a raise. Yeah. But not according to the customer. Absolutely. Absolutely. Bridget. I set my prices fairly high to begin with. M-hmm (affirmative) So I think what I wanna do is find a way to offer a little bit more value. M-hmm (affirmative) For that price, but I don't wanna lower the price. Great answer, great answer. And of course, the answer could also be no, it's not time to raise or lower your price, that's fine too. What about online? What's the consensus? Yeah, Apple says, "Raise them for sure, and make sure "the rest of my branding and packaging helps tell a story." Excellent. Kaybay says they think they're on target, but they found this affirming. Oh good. So thank you for asking. Absolutely, and Gloom Match is saying they've just been in another window raising their prices on Etsy as we were talking. Yes! That is what I like to hear. All right, cool. So, some other things to think about before we get into what happens when it is time to raise or lower your prices. First, is the same product worth more for a price than for free? Is the same product, with a price tag on it worth more than when it's free? This is a little bit of a mind buster. The answer is, of course it depends, but a lot of times people will value a product more with a price tag on it. People are standing around the streets of San Francisco, I'm sure, all the time, trying to hand you this free newsletter or that free newspaper, or again, you go to the shopping mall or the grocery store and people are handing you free stuff, "Here try this." We don't value that stuff. We might pop it in our mouth, sure, and say, "Oh, isn't that interesting?" But did you get the name of the product? Did you really care? Probably not. The same product is often worth more for a price than for free. Similarly, how does value change as price changes? Now, this is not, again, a one-to-one correlation, but very often, as you raise the price on something, people will value it more. They will expect more from it, they will give more of themselves to it. Again, this is a change that I've noticed in my own business, but it might be a change that you notice in your photography business or in your coaching business, that as you've raised your prices you attract clients who are actually willing to give more to their own experience. So not only is your job easier, more fun, more inspiring, but they actually get better results, which means they're more likely to tell their friends. That is the really good cycle to be in. So, have you gotten your prices to the point where your customers are really valuing what you do as much as they possibly can? We are attracting those kinds of customers who give and give and give of themselves as part of the experience to get as much out of it as possible. So what influences what people are willing to spend on a product? Man, all sorts of different things. It could be the type of question that they have. It could be the way you're positioning your brand. It could be the story they're telling themselves, the beliefs they have that change what people are willing to spend on a product. We talked a lot about personal values, personal values greatly effect what people are willing to spend. Again, if you think more about what you're willing to spend more on, you'll be able to figure out what your customers will be willing to spend more on and how to attract customers that are willing to spend more. So think about all those different influencing factors. Maybe jot a few down. What influences you in what you're willing to spend on something? Tara, but what about actually hard costs, scarcity of your materials, et cetera. How do you build that into also determining value? Sure, so that goes back to the idea of having a pricing formula if you're creating physical goods. And you must have a formula. You need to be thinking about materials plus overhead, plus labor, am I missing anything? Plus profit equals wholesale, wholesale times two equals retail. But that's your starting-off point. Yes, in fact, Juliana was asking very specifically about wholesale, so thank you for mentioning that. Yeah, absolutely, so labor and profit need to be built into your wholesale price if you make physical goods, and then you double that for retail and that's your baseline. Everything else that we're talking about today is how you take that baseline and you play with it and you make it work for you and you make it make sense to your customer and you use what you do to that baseline price to tell the story you want to tell. So often, especially with jewelry designers, their material cost doesn't actually add up to what someone would be willing to pay for something. So you can add the materials, you can add the labor, you can add the overhead, you can add in the profit, and when you come up with that retail price in the end, you're like, "Oh really? Is that it?" If you're familiar with the full vastness of the marketplace you'll realize someone else is selling very similar earrings or similar style or similar materials for twice that. Why is that? How does that work? What influences that? And once you've got those things figured out, you can charge twice that too. Really. All right, so, it's time to raise your prices. It's time to raise your prices. So what do you do? First, you need to decide on the new price, and you're gonna use all the information that we've covered today. Yes, you're gonna keep in mind those kind of formulas if you have a maker business as well, but you need to decide on what that new price is. And people, it is that simple. You decide on a new price. It is a choice. No one is backing you into any corner. No one is telling you what to do. No one is going to say, "This is really what you should be charging for this." It's your choice, you make the decision, you are intentional about it. That's the first step to changing your prices. Sounds silly, but it's true. The second thing you need to think about is what you're gonna do for your existing customers. People who make physical products, you guys get off pretty easy on this. Most of the time when you change a price on a physical product, you're changing the price for everyone. It's just kind of a carte blanche, this is what we're doing, the price is going up. Maybe you give them a heads up or not, and we'll talk about that, but you just raise prices. Service providers often do something like grandfathering old clients in or they give them an extension on older... You know, they give them a six-month extension or a three-month extension or a you can get one more session at the old price and then you're going into the new price. Some people just grandfather prices in for life. You do what makes sense with your own business. Again, this is a choice. Decide on what you want to do for existing customers. There's no right or wrong here. This is your choice. And then finally, you raise your prices. 'Cause remember, no one's paying as much attention to your prices as you are. I used to joke an awful lot that when I'd have maker clients they would say, "How? How do I raise my price?" It's like, okay, you go into your Etsy listing and you change the number here and then you hit publish. And I understand, I'm not trying to make fun, I totally understand that this is a decision that takes guts for a lot of us. This is a decision that we spend tons of time wracking our brains around about. But when it comes down to it, raising or lowering your price is as simple as going into whatever ecommerce solution you're using, or the next time you're on a sales call and saying, "My price is this." And being okay with that, being really okay with that. And just doin' it. So that's the third step. Decide on your new price. Figure out what you're gonna do with your existing customers. And raise your prices. Robin. Thinking of that, I used to drink soy lattes. Oh, okay. (laughs) And I remember when Starbucks had a rewards program or something, they still do and they didn't charge you for the soy. And then they started charging you for the soy. It made me go, "Well, that kinda sucks." But it didn't make me stop buying it. So I think that's a really great-- They actually did have a big backlash. Oh they did? Yeah. Yeah, a lot of people were boycotting Starbucks. Not enough to... I'm sure they're fine. And I'd love to know the data on how many people actually started going back. I actually stopped for six months, but then I wound up going back. I hope, against all hope, that that would never happen for any of your businesses, and a lot of times that's social media running around. (Woman mumbles) Right, exactly, or twice. But yeah, I think a lot of that is social media running amok, and one of the major benefits that we have as business owners is that we really do have relationships with our customers. Even if they're not people you've even emailed before, let alone met in person or spoken with on the phone. They feel like they have a relationship with you. And if there is a bit of a backlash, you make a human explanation. This changed, or I needed to do this, or I reevaluated, and I really hope you'll stick around, 'cause I really value your being a customer. I worked for a jewelry company that was growing very quickly and when the prices of silver and gold were going up substantially, we had to raise our prices, but I was the director of sales, so I got a lot of those calls, but it was about the communication. Usually when you explain, people are okay about it. And the people that aren't okay, they're not your client anymore. Exactly. It's like you said, the people that are your ideal client will come to you. Yes, yeah, and people come and go in our businesses for lots of different reasons. Pricing is a good reason for people to come and go. It's a solid one. It doesn't reflect anything on you, and I think that's something that we have to remember too. Everyone's coming and going for different reasons. You will always be losing customers, you'll always be gaining customers. Make sure you're taking care of yourself. Make sure you're taking care of your business. Make sure you're setting yourself up for success in the future. And if you need to raise prices, or if you need to lower prices, do what you need to do. Talking to that, Tara, this is maybe something we'll get to later, 'cause this is slightly off topic, but it is a challenge, I think, and we have a designer in the chat room RMarmay. They're saying they're in a very competitive situation now internationally, because they know they quote a price, but they know, they're a designer, and other people elsewhere in the world will undercut them almost by 10% of their price. Ecommerce has made that possible. Do you have to take that into account now when you're setting your price as well? I think that, first of all, it's a great question, and I think that you need to think about that, but you need to not let yourself be backed into the corner. And so just like price is a choice. They are saying how they do walk away. They'd rather not get into the barter. They say, "You know what then? Go with that price." Excellent. Yeah. So what I would really, really strongly recommend is that you focus on the things that set you apart that you do exceptionally well, that makes you really different, and you really put the focus on value right there, because if you focus on all those things that only you can do or only your company can do, then you can set your prices however you, because the people who want what you've got have gotta come to you. So while I understand that there are lots of markets that are highly competitive, especially in creative businesses, and creativity, very broadly defined, we all have a way of differentiating ourselves of making our brand different, making the value that we provide different, such that we can choose to price our work in a way that works both for us and for our customers. Thank you for that. Yeah, no problem. All right, so let's think about some other things to consider when it's time to raise or lower your prices. First thing, do you announce the price raise or do you not announce the price raise? Do you announce the price raise or do you not announce it? This can go either way. This is literally something you need to sit down and think about. Is there benefit to you in announcing a price raise? So for instance, maybe if you decide that you're gonna raise your prices in two weeks, in the interim, that gives people time to purchase at the old price. Maybe they book a session with you at the old price. Maybe they purchase a pair of earrings. Maybe they book a photography session in that time. Whatever it is, you give them time to be able to do that when you announce a price increase. If you don't announce a price increase, you don't get that opportunity to get people to buy, but maybe you've realize that your prices really, really are unsustainable, and that kind of announcement could actually put you out of business or close to it. You know, you don't wanna put yourself in the position if you've realized your prices are unsustainable that now you've got all this new work at the unsustainable price. That could be really, really bad for you. If it's a question of telling a different story, if it's a question of changing the way your business is positioned, of how people relate to your value, you might get a nice flurry of business with a price increase announcement that allows people to take advantage of something they may not be able to take advantage of again for a while, because of pricing concerns or investment concerns. So there's lots of different reasons that you may announce or may not announce your pricing. Again, the choice is yours. What makes sense for your business, for the reasons you need to raise or lower your prices? And I'm happy if any of you guys are making that decision right now, I'd be happy to talk that out with you. Similar kind of question, do you plan ahead, in other words, do you say, "All right, three months from now, it's going to be time to raise my prices," or just do it now? Again, this is your choice. What makes sense for your business? If the change in price is due to like what Ali was saying about adding to your skill set, you may know that you're completing this training program at this particular date and the week after, you are raising those prices, 'cause you really like to think ahead in your business, and that's awesome. So you're thinking ahead, you're planning ahead, you know when that price increase is going to come. Conversely, again, if your prices are unsustainable, you may need to do it now. And if that's you, I highly suggest doing it now. So if your prices are unsustainable, do it now, get it done with, rip the bandaid off. And if not, plan ahead. Maybe you plan for an annual raise. There's a brewery in the town where I live where the owner believes very firmly in just bumping up the price on the menu every year. A nickel here, a dime there, a quarter there. And you know what? I think that's a great idea. That's a great idea. Then he doesn't have to worry too much about ending up on the low end by default. He's right in the middle-high end of the market right now. That's where he wants to be, raising prices on an annual basis allows that to happen without him having to constantly be making calculations in that way. You might do it that way too. It may not be a one-time price increase six months from now, it might be just something that you build into your regular business operations. Another thing, is this temporary? Or is this permanent? Is this temporary or this is permanent? This goes back to the idea of supply and demand a lot. Maybe there's a temporary price increase that you need to make because of supply. Uber does this. Uber, the cab alternative company. And again, say what you want about whether this is a strategy that's fair or ethical or not. It's simple supply and demand when they can't supply enough cabs to meet demand, they raise their prices to reduce demand. So you may need to do something similar in your business. Again, this works with discounts too. Maybe it's the holiday season and for December, you are not charging shipping, because you just wanna crank this stuff out, right? That's fine, that is a temporary decrease. Or maybe you realize at the end of December that you really liked offering free shipping and that this makes a lot of sense with your business model and with the way that your other prices are engineered, with your marketing, with your positioning, so you decide to make it permanent.

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