I have been feeling that we need to review our prices and implement price increase at inspire.
That is due to the way salaries, subscriptions, and other inputs to our business.
It has been increasing over the last 24 months.
At the same time, I’d share my thought process and an insight into what happened to me and inspire in 2020.
That time led to a price increase of 200% at the high end (but between 10 – 50% on other services).
Covid had just kicked off in late 2019, but got serious in March 2020.
Throughout this time, I also had a business partnership breakdown during that same window. Not great.
After taking back full control of the business with 100% ownership, I realised we needed to change the way we’re doing things on a number of fronts.
Over the time of having a business partner, I started to lose trust in myself and in my own decision-making process.
Now it was just me again.
I had to back myself like I did in my first 2.5 years of business I had on my own.
We hadn’t really reviewed our pricing over the last five years from 2015 through to 2020.
We don’t do timesheets, and we have a pricing menu and calculator that we use internally for different services.
I immediately put the base price of our compliance and proactive tax planning package from $500, to $550 a month (a 10% increase).
Our structuring services (which includes setting up trusts companies, self-managed super funds and the like) increased between 20 – 50%, depending on the service.
I felt we were too cheap for the effort and additional work we put in, rather than just setting up the company or trust itself and handing over the keys.
We also increased the cost of our advisor facilitated estate planning by $500 or so at each service level.
All of this pricing was for new clients only, and we were going to review our existing clients’ pricing coming into June 2020.
Now, we might be increasing our prices by 10, 20 or sometimes 50% (depending on the service) but think about what happens to the net profit margin:
Let’s say our product currently is priced at $100.
Our wage cost is say 30% or $30, overheads are 40% or $40, leaving a profit margin of 30% or $30.
Due to the events of the last 3 years, our wage cost goes up by 20% and overheads go up by 10% – that is now $36 and $44 respectively.
Our profit has reduced from $30 down to $20 if we do not change our pricing, which means we’ve lost one third of our profit.
If we increase our pricing on that service from $100 to $120, our profit on that service would now be $40 taking into consideration the rising costs (which is actually an increase of one-third in profit, compared with what we were making on that service originally).
We continued to have no pushback from new clients on our pricing, and because it was the only pricing they had seen from us, there was no framing that we had recently increased prices. Instantly, those clients were substantially more profitable.
We adjusted our pricing at the start of 2022 as well – our base price for compliance now $600/m. Other prices tweaked as well.
Coming into the start of a new calendar year, I encourage you to place consider what you might want to change about your pricing – even just for new clients.
I’m not sure about your firm, but there seems to be an abundance of new work coming in, and our limitation is around delivery and finding good team to produce enough work. So why not make the work that you do a lot more profitable then otherwise would be by increasing your prices by between 10 – 50%?
The steps I took were pretty simple (for our no timesheet firm):
- List out all the services in an excel document
- Put the current prices that you charge beside each item
- Think back to when you last increased your prices
- Consider the true value for the effort that you deliver (and I recommend adding 10% because you’ll probably be too close to the service offering to see its true value to the client)
- Be sure your prices increased by at least 10% on each service, as a minimum
- Put the document together so you can share this internally and train your team on the new pricing
- Ensure that you update your marketing material, including website if you publish pricing on that (and also your ignition proposals)
- Enjoy the additional profit margin for your new clients
- This should build confidence that you can have conversations with your existing clients to bring them to a similar, increased pricing structure
Let me know what your thoughts are on this and what your experience has been previously raising your prices.
Also, let me know if these longer format emails are handy or if you’d like to continue receiving them in addition to the video style content that we’re used to putting together – as we may do more of it.
And all the best for this year!