Raising Rates

[stsanford]

Hi there,
Been busy working in my business rather than on it. We're going through a growth period which is odd when you read the news in the US...
Anywhoo, I'm looking to raise rates because of costs related to fuel, shipping, etc. Seems everything has gone up, my bottom line is tight to begin with, and I haven't raised rates since either 03 or 02.

Has anyone done this recently? Do you send out an e-mail?

My thought was to send out a blast to all responsible parties that we were raising rates, and that in order to maintain original rates, we would accept block time. (A retainer if you will) of 10 hours or more which could be replenished on an as-needed basis. Figure that would handle the complaints.

I always hesitate to do this, mostly because I suffer from bleeding heart syndrome, but I have come across competitors who charge an easy $100 per hour more and who are nearly dangerous. (We lost a client during a change of Office Managers. She brought in "her guy" from a previous employer. He botched everything up, then they called us back in 6 weeks later." We don't have a lot of churn (12 years or more is our average client relationship. Just feel like we may be underselling, and an additional $20 per hour would help things a bit on the back end.

We're also going MSP and my other thought would be to just push more and more on the MSP side and try to command a high amount that way.

As always, I really appreciate any help and advice anyone would be willing to share.

Thanks so much,
Scott

 

[jdpetrov]

I would use Survey Monkey or something like that to send out a survey to all of your current customers. Use the questions to get a feel for what your customers think of your service. Among the questions, ask something like "Do you feel that our prices are (more reasonable, less reasonable) than other computer repair options in the area?"

A survey like that will give you some sort of heads-up on how well-received a price-increase will be. If the results don't look good, then take a look at how you can increase the perceived value of your services without incurring additional cost. When perceived value is greater than actual cost, customers will think they received a good deal pretty much regardless of the actual cost.

 

[Parkwaytech]

Do you have mostly residential or business clients? For residential, I wouldn't even worry until they call. For business clients, we have done this twice since we opened. Here is what I did.

I sent out a letter to all of our business clients. I let them know about the change. I told all of our MSP accounts that their rates wouldn't change, of course. For the clients that I wanted to keep, I let them know that a managed services agreement might be a better option for them, even if they had looked at it in the past. So I essentially had three separate letters with mostly the same content. Who got what letter depended upon their relationship with us. I never heard a negative word about either rate increase. I may have had one or two clients who either cut back or stopped doing business with us, but those were all businesses that I wasn't sad to lose. Long story short, profits increased about 40% over the next twelve months while billable hours fell. Made me wish I had done it sooner. When MSP agreements came up for renewal, the new hourly rate was reflected for any work outside the scope of their agreement.

The key is to remember that, if you are doing your job, you and your techs have improved their skills. I justified it in my mind that, because of improvements in procedures, I could complete most jobs in anywhere from 20% to 50% less time. Less money for me even though I was doing the same job better.

By the way, we were already the highest priced in our area before the rate increase. And yes, it made our Managed services agreements look better by comparison. I haven't had anyone bat an eye at our hourly rates. But, if I did, I would work to make sure I was communicating our value.

 

[stsanford]

Interesting Joshua, never thought of sending out a survey. I have the ability to do so from within my PSA, so that might be an option. I worry about testing the waters with a survey, who in their right mind would say "Yeah, I know I'm paying too little..."

I am sending out a marketing e-mail this week, might just attach a little survey to the end of it... Thanks for the idea.

 

[Parkwaytech]

Forgot to mention one thing. I try to raise my rates at least every two years. Costs go up, we improve, etc. Obviously you reach a ceiling at some point, and I doubt I can do that too many more years. But it is a helpful guide if you have been very low for several years. It allows you to bring up your value over time without causing sticker shock.

And I have to disagree with Joshua. Don't do a survey. If you haven't raised your rates for over 10 years and you have those long client relationships, it should not be an issue. No client wants to see prices to go up, and very few have any idea of market prices.

 

[stsanford]

Do you have mostly residential or business clients?

... but those were all businesses that I wasn't sad to lose. Long story short, profits increased about 40% over the next twelve months while billable hours fell. Made me wish I had done it sooner. When MSP agreements came up for renewal, the new hourly rate was reflected for any work outside the scope of their agreement.

The key is to remember that, if you are doing your job, you and your techs have improved their skills. I justified it in my mind that, because of improvements in procedures, I could complete most jobs in anywhere from 20% to 50% less time. Less money for me even though I was doing the same job better.

By the way, we were already the highest priced in our area before the rate increase. And yes, it made our Managed services agreements look better by comparison. I haven't had anyone bat an eye at our hourly rates. But, if I did, I would work to make sure I was communicating our value.

Thanks for the reply,
We're Business, actually Healthcare Vertical and we routinely get excellent remarks from service close surveys. I'm thinking that your findings are what we're going to find, I just always worry that I'll shoot myself in the foot!

 

[Parkwaytech]

Been there! I was so nervous about my first rate increase. I was working with a business coach at the time who suggested it and reviewed my letter. He told me to suck it up and get it over with. I was amazed that not one customer said anything about it. Just paid their invoices like always. Some did contact me about getting on a maintenance agreement though.

 

[stsanford]

Been there! I was so nervous about my first rate increase. I was working with a business coach at the time who suggested it and reviewed my letter. He told me to suck it up and get it over with. I was amazed that not one customer said anything about it. Just paid their invoices like always. Some did contact me about getting on a maintenance agreement though.

YOu know this might be the push some need to get on with MSP. I have basically been giving away MSP by being really proactive and monitoring backups and servers just for my own piece of mind (easier to schedule instead of put out fires!)...

Okay, I'm sold! Going to draft up some stuff this week. I've got something like 10 internal projects all cooking' now... Was just at a partner summit and have so many business dev ideas swimming around in my head, I'm psyched...

Rock and Roll!


Thanks again for taking the time for me.

 

[carrcomp]

YOu know this might be the push some need to get on with MSP. I have basically been giving away MSP by being really proactive and monitoring backups and servers just for my own piece of mind (easier to schedule instead of put out fires!)...

Okay, I'm sold! Going to draft up some stuff this week. I've got something like 10 internal projects all cooking' now... Was just at a partner summit and have so many business dev ideas swimming around in my head, I'm psyched...

Rock and Roll!


Thanks again for taking the time for me.

Nooooo! Don't give it out for free!

Service plans aren't exactly the bread and butter of my income, but giving away free services have bit me in the butt before.

My first laptop repair, I took an hour off of the billable time because I thought it took too long and I didn't want to upset the customer.

Instead, the customer started to expect to see "*% Discount" on every invoice, and huffed when it wasn't there.

For this reason, the only way I'll give out free services is to compensate during a complaint, which has never happened yet.

 

[jdpetrov]

And I have to disagree with Joshua. Don't do a survey. If you haven't raised your rates for over 10 years and you have those long client relationships, it should not be an issue. No client wants to see prices to go up, and very few have any idea of market prices.

Interesting way to look at it. I agree that if customers aren't aware of pricing other than your own, they'd have a tough time answering related questions.

And long-term clients shouldn't switch just due to a price increase.

I just tend to over-complicate situations like running survey's instead of just raising prices

 

[PCX]

These are my thoughts on raising rates and prices in general.

Charge what you are worth. Simply put, if you believe that your services are worth more than the next guy and you have proven that, then raise your prices. When it comes to businesses, typically they understand. Even when it comes to residential customers, they typically understand and if you did a good job in the past, they are usually just happy that they can still call you.

That said, you should expect dropping your bottom 10% to 15% off your clientele base each time you raise your prices. But your prices should and will in most cases well over make up for those customers you lose.

Another thing to note is that depending on your rates, you will attract certain types of customers. If you are finding that many of your customers are constantly trying to get a whole lot of something for nothing, then you are not charging enough. If you are finding that most of your customer are not even blinking when you give them a quote, then you can probably raise your prices. If you are finding that half of them balk at the price and the other half do not, then you are probably in the sweet spot.

Finally, as a personal testimony. I started this business from my home charging the same prices as the shops around me. Within 6 months, I had to open an office. Since then I have had to move and expand about 6 times in the last 2.5 years and I am the most expensive shop in my area and we are busy. It can be nerve racking to raise your rates, but you will be amazed at how easy it is once you start doing it and how little impact it will make on your rate of business. In the end, you should be making more money doing less work and generating better clientele that will cause you less stress.

As mentioned before, expect to do this once every year or two. You may hit a ceiling, but I doubt it. The cost of living is constantly going up, thus so will our prices.

EDIT: One thing that helps when raising prices is to build creditably. For instance, we are the most highly and positively reviewed shop in our areas, so most people who find us because of those reviews, usually do business with us regardless of us being more expensive.

 

[Martyn]

Yes agree with PCX. I read somewhere raise your rates by 15% and lose 15% of your customers. That way you will do less work for around the same money which in turn gives you more time to work on your business.

 

[callthatgirl]

I raised my rates yearly to match the growth of the company. I started out with res/small business here...

2007
Onsite $75 an hour
Remote no support at that time
Shop $80 an hour
(I will never forget my first onsite job, 2 hours $150 check, I was in heaven!)

In 2008 or so
Onsite $85 an hour
Remote $60
Shop $80 an hour

In 2009 or so
Onsite $85 an hour
Remote $70
Shop $80 an hour

In 2010
Onsite $105 an hour
Remote $75
Shop $80 an hour

In 2011
Onsite $125 an hour
Remote $99 an hour
Shop
$39 for diag
$59 for a half hour
$79 for 3/4 of an hour
$99 full hour

We took on more flat fee priced stuff for remote and shop, took away a lot of little petty timed stuff. Still under my competitors and making it happen. I think it's valuable to raise your rates when you are faster and know more about repairs. You lose money if you don't raise, imo.

 

[YeOldeStonecat]

but I have come across competitors who charge an easy $100 per hour more and who are nearly dangerous.

That worries me that your rates are ridiculously low.
I'm 125/hour. About 2 years ago we went up from 100. We'll be going up again soon.

If some of your competition is charging more than 100/hour than you....how low are you? Unless you're saying some of your competition charge 200/hour.

I disagree about losing 10-15% each time you raise your rates. Or maybe that rings more true when you talk about home users...but since I've been through a lot of rate changes since doing business networks for a long time...I don't see that kind of shedding clients each rate increase.

 

[PCX]

That worries me that your rates are ridiculously low.
I'm 125/hour. About 2 years ago we went up from 100. We'll be going up again soon.

If some of your competition is charging more than 100/hour than you....how low are you? Unless you're saying some of your competition charge 200/hour.

I disagree about losing 10-15% each time you raise your rates. Or maybe that rings more true when you talk about home users...but since I've been through a lot of rate changes since doing business networks for a long time...I don't see that kind of shedding clients each rate increase.

Yeah, the 10-15% loss is more or less for residential customers I would assume. I imagine that as soon as a business finds a good tech or IT support that they like, they are going to keep them around even with raised rates. That said, I think its more or less a concept to mentally prepare you. I have no way of tracking if I am losing my bottom 10-15% but it seems that I am not. I also believe that the 10-15% also included the bottom percentage of the potential customers you may have gotten with lower rates.

 

[YeOldeStonecat]

Yup....Business clients tend to stick with their support peeps for the long run. A business network can be complicated....it is not easy to change IT vendors nilly willy on the fly at some frequent interval.

Home users..they can change their support people on a daily basis without much downtime and needing to get someone familiar with their system.