Last week, I laid on a narrow table, the light shining so brightly on my face that my eyes squinted instinctively, even though they were closed. Knowing I wouldn’t be able to move for the next hour (because good lashes take time), I struck up a conversation with the esthetician.
Ep 14: Time to Raise Your Prices? Ask These 3 Questions First. – Start, Grow, or Pivot: Business Planning & Strategies For Women Entrepreneurs
As a consultant, I’m perpetually curious about how women run their businesses. I love hearing their stories and asking questions. I love getting to know them and learning what they’re passionate about. What makes them spring out of bed in the morning, and what keeps them up at night.
Each of these conversations is a journey, and more often than not, I’m fascinated with what comes up.
In this case, it was money. Or, more specifically, prices.
“We raised our prices a while ago,” she told me. “And some people were not happy about it.”
Pricing in service-based businesses (think salons, spas, and the like) is wild. Unlike a brick-and-mortar shop or online store, there’s no MSRP to lean on when you’re setting your rates. There are no rules to follow, no guidelines that are guaranteed to work, nothing.
This lack of direction leads service-based entrepreneurs to rely on competitors to set their prices. But who do you think those competitors relied upon to help decide their prices? You guessed it: their competitors!
Over time, a pricing setpoint (or range of setpoints) emerges. And while I’m not suggesting you raise your rates to the point that they’re WAY outside the bounds of reality, I do encourage you to ask yourself three questions:
#1 – What story does my price tell?
#2 – What value(s) does my price express?
#3 – What filter does my price provide?
Let’s dive into each of these and see whether the rates you charge tell the right story, express the value you want them to, and filter for your best clients.
Oh, and before I forget to mention it, I created a free worksheet you can download to help you with this exercise. Download it by clicking the button at the end of this post, and VOILE – it will magically appear in your inbox. 😉
Question #1: What story does your price tell?
It’s true: your price tells a story. Price is a fundamental and often overlooked form of communication. We can usually tell a lot about a service provider by the amount they charge, and prospective clients can infer a lot about you based on your prices, too.
When entrepreneurs charge relatively low prices, it usually suggests one of two things. Typically, it either means this person is inexperienced or insecure.
And hey, I’m casting ZERO judgment with either of those possibilities. It’s okay to be new at something, and it’s human to doubt your abilities sometimes. Nothing has gone wrong here.
In both cases, I would argue that charging below-market prices is bad for your client. Yes, I said it: undercharging harms you, your industry, and your client.
It can be tempting to charge less—often significantly less—than the competition if you’re inexperienced. Similarly, if you’re unsure about your skills, it logically makes sense that you’d set your rates low.
It sounds good, except humans aren’t very logical at all. Our behavior is driven primarily by emotion. And when you undercharge, you encourage your clients to indulge in scarcity-based, fear-driven behaviors. These manifest as last-minute cancellations and low retention as clients chase the next deep discount (likely from a different provider).
If you’re inexperienced or unsure of your skills, I encourage you to focus on raising the quality of your work instead of lowering your prices. Think deeply about the experience you give your clients. How can you elevate their experience with you? How can you uplevel your customer service?
Having said all this, I realize that pricing is an individual decision, and there are times when keeping rates low is a decision that aligns with your values or the needs of your community.
But for the entrepreneurs who do great work but attempt to compensate for being a newbie by undercharging, or for those whose limiting beliefs and mindset blocks keep them small? Consider rewriting your story. This is your business, and you’re in control.
Question #2: What value does your price express?
First, let’s talk about the difference between price and value. Price is the dollar amount you charge. Value is what your client gets by hiring you.
And, to be clear, value is NOT a synonym for worth.
“Price is what you pay. Value is what you get.”Warren Buffett
Please don’t confuse value with worth. I hear too many (well-intentioned) people urging service-based entrepreneurs to “charge their worth.” Except there’s a big problem with this: your worth is infinite. You couldn’t possibly charge enough to skim the surface of what you’re worth.
Value is also not a measure of what you deserve. Value is simply the answer to the question: what is my service worth to the client?
For example: How will their life improve as a result of what I do for them? What impact will hiring me have on them? What will they gain? What pitfall will they avoid by working with me?
People love to complain about the price doctors, lawyers, and accountants charge for their services. But everyone knows that the value of good medical care, sound legal advice, and accurate tax preparation is worth it.
The value concept applies to every service-based entrepreneur, by the way. It’s not limited to those who provide “essential” services. Even if you’re an esthetician, cosmetologist, coach, healer, artist, or any other “luxury” provider, your service carries immense value.
And the amount you charge should align with that value. This approach to pricing is tricky because the value of most services is subjective and nonmonetary. Still, I think that if you’ve been considering a price increase, imagining all the ways your service is of enormous value to your clients can give you confidence.
Another way to think about the relationship between price and value is to consider your personal and professional values. What are the values that are most important to your life and work? Is it integrity? Excellence? Passion? Efficiency? Reliability? Honesty?
Get clear on your values. Does your price reflect those values? For example, if one of your values is excellence, would charging low-end rates reflect that value? I’m guessing not.
Question #3: What filter does my price provide?
Your services aren’t right for everyone, and that’s okay. Your price attracts specific clients and repels others, which works like magic if you let it.
There’s a saying in business called the Pareto Principle. It’s not an exact mathematical formula, but essentially it says that 20% of the work you put into your business will yield 80% of your results. Likewise, it’s common for 20% of your clients to take up 80% of your time, especially when you aren’t using price as an effective filter.
The Pareto Principle showed up constantly when I managed a portfolio of business loans for a bank. As a lender, I worked with start-ups and established companies to help them fund asset purchases, manage their operating cash with lines of credit, buy real estate, and so on. Over the years, I noticed that the smallest companies often took up most of my time.
I kid you not: the multi-million dollar companies were usually the easiest to work with, while the micro-businesses gobbled up my time and energy like a colony of ants on a crumb. This is not to say I didn’t love helping small businesses—because I did enjoy it immensely—but from a financial perspective, it wasn’t ideal.
When you focus on aligning your price with the amount your ideal client is ready to pay, you know you’ve set the right filter. The clients who aren’t prepared to make the investment required to work with you—whether you’re a stylist or an attorney—are naturally filtered out by your price.
Your price certainly won’t be your only filter, but it can be one of them. Just like filtering your ideal clients by age, interest, location, gender, your price will call out to “your” people.
Bonus Question: How does my price serve my best clients?
Because money is such a loaded topic in our society, the prospect of raising prices can feel scary. As heart-centered entrepreneurs, we want to help people, have an impact, and be accessible.
After the esthetician working her magic on my lashes shared with me how some clients reacted negatively to her recent price increase, I shared one of my favorite questions with her: “how does your new price serve your best clients? You know, the ones who value your work and respect your expertise? The ones who show up on time, refer you to their friends, and stay on schedule for fills and touch-ups?”
She was quiet for a moment, and I heard her tone change to one of curious optimism. “I’ve never thought of it that way,” she said. “But it makes so much sense.”
She shared that her salon used to get slammed every spring. Flush with cash, women whose tax refunds have hit their accounts flock to her chair for lash extensions and permanent makeup. They snatch up appointment slots, leaving “regular” clients scrambling. By summer, most of these “new” clients are gone. Some stop booking appointments, some cancel at the last minute, and some are simply no-shows.
Again (I need to make this crystal clear), I don’t think there’s anything wrong with clients who treat themselves to nice things when finances allow. It’s completely natural, and I have no place to judge that.
What this phenomenon does, though, is illustrate the benefits of aligning your prices to your best clients. In doing so, you can be sure that your price tells the right story, is an expression of your values, and acts as one of the most potent filters you have to find and keep loyal, engaged clients.
P.S. Because I love to spoil my readers and listeners, I created a free worksheet you can download to help you with this exercise. Download it by clicking the button below.
What do you think? Comment here (yes, we actually read these)!