Pay to the Order of …. FEAR

I’ve had a series of separate but similar conversations in the past few weeks with several clients on the subject of pricing. These clients are:

• Professional service providers in different industries

• Extremely good at what they do – among the best in their field and highly differentiated . . .

• Operating at full capacity – they cannot take on any more work, and

• They would like to be more selective in the clients they work with.

During our working sessions, I posed a similar question to each – How much can you raise your fees without losing any business? 5%? 10%? 20%?

One client said “We could certainly raise our fees (billing rates) by 10% with no impact on sales – we would not lose any clients.”

My response: Okay – so on sales of $1X – you would now have sales of $1.1 X on the same % overhead. Where does the extra 10% go?

Straight to the bottom line. Pure profit.

What would you do with that money?

Another client says – “I know a competitor whose rates are 25% higher than mine – but I am way better than them. I could easily match their rates and not lose business. “

I say: So on sales of $X, you now have sales of $1.25X – where does the extra 25% go?

Straight to the bottom line. Pure profit.

What would you do with that money?

Another client says – “I have three new prospects who are a great fit for me and would pay at least 20% more – but I have no capacity because I’m busy with existing clients.“

I say: What would it mean if you could refer these clients to a colleague to handle the work? They are effectively overpaying for the work and you are underutilized. You could increase your revenues 20% and enjoy it more, right?

So on sales of $X, you now have sales of $1.2X – where does the extra 20% go?

Straight to the bottom line. Pure profit.

Ok, presumably by now you get the point. Raising prices with no loss of sales represents pure profit.

So, here’s where the conversation gets interesting…

I: So why wouldn’t you raise your fees? The responses?

“Hmmm ….”

“Well, um ….”

Lots of reasons – but they all come down to one thing: FEAR.

I: So, take out your check book. The clients look at me like I’m crazy.

Make out a check. Pay to the order of FEAR.

Fill in the amount: 10% or 25% annualized. That is what you are paying each year to FEAR. If you’d like, you can divide that number by 52 and write a check for that amount each week. That is what you are effectively paying to FEAR to stay in it. FEAR has a nice little extortion racket going with you, eh?

If you see yourself in these examples, take another look at that check . . . and then:

• If you have pricing leverage, use it. Using this leverage is not about greed, but about operating at your highest level with your ideal clients, at a level of capacity that keeps you sane and creative.

• To overcome the fear, prepare yourself for your conversations with your clients – how you are demonstrating additional value. Do not talk about your cost of doing business. Clients don’t care about that – they only care about the value you are providing to them. Be prepared to offer them an alternative – perhaps a referral to another service provider who can handle less specialized work.

• If you’re a professional service provider, know that raising fees is almost always a positive – not a negative. You get better clients and more business. And you stop paying to FEAR.