The danger of reducing fees
by Chris Merrington
If you don’t increase your fees, prices or rates each year then this is the equivalent to reducing your fees each year. I come across many companies which haven’t increased their rates or fees for 3, 4 even 5 years, and one that hadn’t increased their fees for 13 years.
Your fees and rates are probably under more pressure than ever. It is highly likely you are not charging high enough fees compared to the value that your client derives. Many businesses under-charge in relation to the end result the client enjoys. It is easy to come down in price and much harder to go up. There are specific strategies that will help you hold and even increase your fees whether in tough times or normal times.
Take time to prepare for price discussions and never apologise for your price or fee. The first person you need to sell your price to is...YOU. Say your price slowly, clearly and confidently.
What is your pricing strategy? Or do you just charge the ‘market rate? Or cost plus a mark up? If you have on-going relationships with your client then the price you charge your client in 2012 will largely dictate the price you will be charging that same client in 2013, 2014 and even 2015. You are not just providing a price today! Today’s price has long term implications for your pricing for that client.
If you under-price to a client you will lose in three different ways!
Reduced revenue on this sale
Reduced revenue on subsequent sales to this client
Your relationship will be adversely affected and your confidence will be knocked.
Don’t immediately believe clients when they tell you that you are expensive. Often it is a knee-jerk reaction by them designed to elicit a price reduction in response. It is part of your client’s job to challenge your price. It is part of your job to know how to respond to that challenge.
Do you say ‘yes’ too readily? Your preparedness to say ‘no’ will substantially increase your ability to hold and increase your fees. The challenge is to ‘disagree without being disagreeable’.
What are the dangers of not increasing your fees? Firstly as your costs increase unless you are finding ways to work more efficiently, your profitability will decline the client will think you are weak and your self-belief will decline. In a year’s time it will be a bigger problem unless you take action now. Morale in your business is likely to decline as teams which work on unprofitable clients are often de-motivated.
There are dangers associated with increasing your fees. You may put your fees under the spotlight with the client and may prompt the client to price compare and benchmark you. You could lose a client.
So only increase your fees if four conditions are fulfilled; you are delivering immense value, are highly differentiated, provide outstanding results and offer true expertise.
Generally the best place to start if you want to increase your fees is with new clients. Test out a higher rate and gauge their reaction. Increase your fee when you have recently won some new business and you are feeling more bullish.
With existing clients you must increase fees on a regular basis i.e annually. Increase fees with existing clients, one at a time. Start with your least profitable client and increase their fees. Choose your timing carefully. There never is a right time to increase fees. There are just some times which are better than others.