Why Charging Higher Fees Is Better For You And Your Customer
by Brooks Van Norman
You hear it all the time: Business owners complaining about how tough it is to compete in their marketplace against low cost competitors.
But it doesn’t have to be that way.
If there’s one thing I’m most proud of in my consulting practice, it’s getting entrepreneurs and service providers to confidently raise their fees. In almost all cases, net income increases because value-based selling makes business easier and more profitable than price-based selling.
But for some reason, people like to focus on how many deals they did, or how many customers they’ve booked, with less regard to how much profit they made.
If this is the case, I usually ask:
Would you rather have more profit or more customers?
This “in-your face” question is important because it’s the beginning of what I call low price “chain cutting”.
There are two chains that bind product or service to price and they both must be cut. The first is in the mind of the prospect, the second is in the mind of the business owner.
Which one do you think is harder to cut?
If you said the business owner, you’re right. The reason is because owners and entrepreneurs are usually very cost aware and focussed more on cash flow than on profit. Their thinking tends to be “stuck” and won’t increase their fees for fear of losing prospective customers because they don’t fully understand how much the customer appreciates the value of their service.
For the right customer, it’s all relative.
In the mind of the prospect, the service-price connection is far more elastic.
Business is about making money and we shouldn’t be shy about it.
The purpose of a business is to make a profit, not to have the most customers.
And bargain-hunting customers are a pain in the ass.
Case in point: A friend of mine is Director of Guest Services at a nice resort and was telling me recently about some of the comment cards people leave behind. This resort has established the practice of politely responding by email to those comment cards, or to those who leave negative reviews on Trip Advisor, Yelp, etc.
As a result, they can usually see who the guest was and what rate they paid.
Guess which customers leave the most negative reviews?
You guessed it – the ones who stayed on a promotion, discounted or free rate. In fact, my friend confirmed over 80% of the negative comments came from guests who paid the least for their stay.
They’ve since stopped running promotions, raised their rates and now have a three night minimum stay – with the emphasis on providing a premium guest experience.
You know where this is going right?
Yep… They’ve increased their profit per guest night by 21%, which is a significant feat to accomplish against competitors like VRBO, AirBnB and deep luxury travel discounts. And of course, their online ratings are improving too.
Increasing their rates enables them to deliver a better experience which creates all kinds of positive outcomes. Customers haven’t complained and their occupancy levels are up.
This story about price elasticity reinforces the key point:
If you’re charging more, you can deliver the best results.
Because with higher prices you have more margin to do things that will make the customer happy and you’re willing to do it because you’re making more money.
However, some people aren’t comfortable with this approach and don’t think it’s right to charge customers the highest rates…that it’s somehow unjust.
More profit isn’t about greed. It’s about running a better business.
To this, I refer back to cutting that chain in your mind between what your service costs to deliver and what people pay. What people are willing to pay is entirely subjective based upon the value they perceive.
The best customers buy experiences and results, not prices.
Selling value instead of price is the answer.
If that’s the answer, what was the question?
The question was how do we stop selling to low price customers and start selling to high profit customers?
That’s an important question and the beginning of moving in the right direction towards getting paid higher fees.
Revenue is vanity, profit is sanity.
The way you get there is like this: Imagine being able to offer each customer the absolute best experience, service and results through your business and not worry about the costs of delivering those things.
When you start running your business that way and leading with massive results for the client – the cost of what you’re selling quickly falls to the wayside in the mind of the prospect.
This is a mindset thing. Mostly for you, but also your customer.
Making this shift requires significant changes in the way you think about, run, market and measure your business. Here are some examples:
- Fewer customers, but more profit per customer. (new measurements & elimination of burnout for you)
- Better customers, who are buying your expertise, not your low price. (different clients who buy value vs. low cost)
- Giving more time, service and attention for each customer. (improved customer experience & happier customers)
- Willingness to work harder and deliver your best for each customer. (renewed passion and pride of ownership for you)
- Different marketing focus. (changing from discounts, sales and price-focus to value and outcome based marketing)
To maintain higher prices, you have to be adept at selling value.
Most business owners are great at delivering their service, but poor at selling the highest rates. All the above takes a little time and some new skills, but the results are literally life-changing.
It’s worth the journey.
Remember, your low prices are your choice and your responsibility.
You are the one who makes the choice to go to the ocean with a teaspoon or a bucket – the ocean doesn’t care.
Money likes to move in big chunks.
Business owners, especially service providers, must stop settling for table scraps when a king’s ransom is within reach.
I’ll say it again – this is not greed.
Rather, it’s good economics that enable you to deliver higher quality results for the customer who wants them and is willing to pay for them. When you’re marketing to the right prospect demographic (and psychographic), it’s actually EASIER TO SELL HIGHER TICKET services.
Business should be easy, business should be fun, but above all, business should be really profitable.
Otherwise, what’s the point?
Here are seven things you can do right now to increase your margins and start charging more:
- Never discount or give in to competitive price pressure purely because the prospect wants a lower price (not without a really good quid pro quo from the customer).
- Remove all pricing from your website and marketing materials immediately.
- Ensure the copy on your website and marketing speaks to the outcomes, results and experiences your product or service provides. Use pictures, video and story telling to support the copy (people are not rational – they buy with emotion, not logic).
- Remind every prospect the bargain of a cheap price will satisfy them momentarily but cheap prices always come with hidden fees they’ll pay for with frustration, poor service, low quality, mediocre results and disappointment – all of which last forever.
- Remember if you’re losing price wars, you’re in the wrong war to begin with.
- Come up with ways to add more value with bonuses, guarantees, no-charge follow ups or revisions, print versions, exclusive downloads, bonuses and complimentary audits. The idea here is to make the value so irresistible, they can’t say no – even at the higher price. You CAN do this if you take the time and brainstorm.
- Get focussed on and market to the niche you can serve better than anyone else, because the more your business is positioned as the “expert” for any given niche, the less price matters.
This is easier said than done, but not impossible.
Did you know that Aspirin, (which is actually the brand and compound name), sells for more than the exact same generic product – usually right next to it on the same shelf.
Because of something called perceived value.
People trust the Bayer brand and believe the results they’ll get from it will be better than the no-name brand.
Getting paid higher fees is all about creating perceived value for your customer.
If aspirin can do it, so can you.
The sooner you can disconnect the price-service link in your mind and start creating higher perceived value, the easier it will be to make a lot more money, the more successful you’ll be in selling to affluent, value-focussed customers… and the less competition will matter.
How Can I Help You?
Thank you for taking time to read this post. If you’d like me to personally review your pricing model and design a detailed blueprint of how you can improve it to successfully charge higher fees – please contact me.
If that sounds interesting to you, please apply on this webpage.