In communicating a price increase to clients, one common error is to reference your increased costs as a rationale for the price increase.
That’s a mistake. A big one.
It's not a mistake because it's not true. Clients intuitively know your costs are rising because theirs are, too.
Attributing a price increase to higher expenses is pointless, even with the clients you think will follow you to Hades and back. Sure, your best-fit clients want you to succeed. They support you in any number of ways, often by sending you referrals. When a client refers their valued relationships to you, they are essentially lending the trust others have in them to you. That’s powerful.
But just because there’s a lot they’ll put on the line for you to help you in your business doesn’t mean that they care about everything you have to deal with.
They can’t care about what they don’t know or understand, and one of those things is your costs to operate.
Clients don’t have vision into everything that goes into how you produce your product or service. Even a solopreneur has multiple inputs to their business that clients cannot possibly know.
Clients are like cats. They love you, but only to a certain point. After that point, it's about them.
Clients Care About Value
Every organization must earn a profit over time in order to survive. It's not just true for you, it's a fundamental aspect of every business. Even a non-profit organization must, over time, have more resources coming in, whether from donations, grants, or other receipts, than money going out.
It’s true for individuals, when you think about it. Every person, and certainly every one of your clients, has their own “income statement,” you might say, which looks something like this:
The value a client perceives is not just tangible but intangible. It's not just the service itself, but what they are able to do because of the outcome of the service.
If you provide consulting services to a business, the business owner most certainly cares about the expense reduction, revenue enhancement, or some other metric in the business that will move in a favorable direction because of the work you're doing.
What they also covet, however, are other intangibles that come with the assignment you successfully complete. Examples of those intangibles could be:
Ability to expand because of improved financial flexibility
Ability to craft better retention benefits for key employees
Additional funds to hire key employees whose price tag previously put them out of reach.
A business owner can, in turn, offload responsibilities to other employees and focus further on the business itself.
A larger, growing company can more effectively attract and retain employees
A larger, growing company confers more status and praise for that business owner
Because of all this growth and development in their company, a business owner can spend more time with their family and friends, doing other things they enjoy outside of the business.
And so forth . . . (the list could be endless.)
Regardless of the service or product, all clients must perceive a "value profit" in the transaction or they won't buy.
The Relationship Between Cost, Price, and Value in Every Transaction
In my book, The Generosity Mindset, I have a table that illustrates how your client's "income statement" lines up with the income statement of your business:
The only point of convergence is price. The price the client pays is the price you receive. It's the only figure that both you and the client have perfect vision of.
Your costs have no relation to what the client has a natural, understandable self interest to be concerned about: the value of what they receive.
Your Quest is to Understand Perceived Value
Clients seek solutions to their problems and needs. They purchase services and products they believe will help them achieve their goals and aspirations. They aren't concerned with details they can't fully understand, such as your costs, that lie between their current issues and the solution they desire, and rightly so.
Your service is a means to an end—a solution. This fundamental truth has always been, and will continue to be, valid as long as people exchange money for products and services.
Understanding and embracing this basic aspect of human behavior will enhance your ability to define the perceived value your clients place on the outcomes of your services.
Consequently, you will be better equipped not only to cover your costs but also to address your clients' deepest needs so that you can command premium pricing.
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Are you frustrated by your pricing? Need help articulating your value? Do you need a better way to identify and close your best-fit clients? Do you want to restore the joy you used to have for your business? I may be able to help you.
I’m John Ray, a business consultant and coach, author, and podcaster. I advise solopreneurs and small professional services firms on their two most frustrating problems: pricing and business development. I’m passionate about how changes in mindset, positioning, and pricing change the trajectory of a business and the lifestyle choices of a business owner. My clients are professionals who are selling their expertise, such as consultants, coaches, attorneys, CPAs, accountants and bookkeepers, marketing professionals, and other professional services practitioners. Click here to learn more or contact me directly.
I’m the author of the national bestselling book, The Generosity Mindset: A Journey to Business Success by Raising Your Confidence, Value, and Prices. The book covers topics like value and adopting a mindset of value, pricing your services more effectively, proposals, and essential elements of growing your business. The book is available at all major physical and online book retailers.
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