How to Successfully Increase Your Prices: An Interview with Mark Peacock, PriceMaker Ltd.
Pricing expert Mark Peacock joined host John Ray to discuss how to successfully increase prices in your professional services practice. Mark covered the primary reason services providers don’t raise their prices (fear), the role of options in better pricing, the two-stage communication process he advocates for a successful price increase, mistakes to avoid, and much more.
Pricing is one of the most powerful levers any business can use to increase profits and drive revenue growth. Yet all too often businesses are too scared to review their pricing and typically many business owners are leaving a lot of money on the table as a result.
PriceMaker is a leading UK pricing consultancy that has helped its clients increase net profits by an average of 20%. They use a simple 7 step process for designing a better pricing strategy that focuses on what customers value, and helps businesses implement new pricing without the fear of upsetting customers. PriceMaker helps with any of the following pricing services:
- Pricing New Products or Services
- Review of Existing Pricing Strategies
- Digital Pricing Strategy
- Implementing Price Increases
- Customer Pricing Research
- Competitor Pricing Assessment
- Tender Response Pricing
- Training for Management & Sales Teams
Mark Peacock, Managing Director, PriceMaker Ltd.
Mark Peacock is a leading UK pricing expert focusing on growth businesses in the Tech, Services, B2B and Product development sectors. He is the founder and M.D of PriceMaker Ltd, a specialist pricing consultancy and has helped his clients create new pricing solutions that add significant bottom-line value (+20% average increase in net profits). Mark spent 25 years working in the corporate world for brands such as DHL and The AA and was business unit director for two business units with £25M revenue and +100 staff where he grew profits by +250% over 5 years. His broad expertise covers pricing, product management, sales, marketing, commercial strategy and P&L management and he is a full member of the Chartered Institute of Marketing, the European Mentoring & Coaching Council, and the Institute of Directors.
John Ray: [00:00:00] And hello again, everyone. I’m John Ray on The Price and Value Journey. And I’m delighted today to welcome Mark Peacock. Mark is a leading pricing expert based in the UK, focusing on growth businesses in tech services, B2B, and product development sectors.
John Ray: [00:00:21] He’s the Founder and Managing Director of PriceMaker Limited, a specialist pricing consultancy who has helped his clients create new pricing solutions that add significant bottom line value, on average 20 percent increase in net profits. Do I have your attention, folks?
John Ray: [00:00:41] Mark spent about 25 years in the corporate world for brands such as DHL. He has been in charge of business units with over 25 million in revenue, that’s pounds, not dollars. So, folks, that’s more than what you think given the conversion. And over 100 of staff headcount where he grew profits by 250 percent over five years. His expertise, not only includes pricing, but product management, sales, marketing, commercial strategy, and PNL management. Mark Peacock, welcome to the show.
Mark Peacock: [00:01:21] Well, thank you, John. It’s a real pleasure to be here. And thanks for that lovely introduction. I’m looking forward to our chat.
John Ray: [00:01:27] Yeah. It’s an honor to have you here. And we’ve got you here to address the question of how to successfully increase prices. But before we get to that, just real quick, you’ve got all this experience in corporate that goes well beyond pricing. And I’m just curious, when you left corporate to start your own practice, why did you focus on pricing?
Mark Peacock: [00:01:54] Yeah. That’s a great question, John. And when I originally left, I wasn’t absolutely sure what I was going to do. As you say, I have all of this experience in product management, marketing, running sales teams, and running a business. And then, I have my eureka moment and I thought, “Pricing. Nobody talks about pricing, particularly in the small and medium sized business world.”
Mark Peacock: [00:02:18] You know, you’ve got the likes of McKinsey’s and the big consultancies helping large corporates with pricing, but nobody really talks about it in the SME world. And I just felt that there was a place and a gap for somebody to come in and talk about how pricing can make a big difference to your business, and show people that it doesn’t actually have to be scary or difficult. And, actually, that there are lots of simple tactics that anybody can use that can make a big difference. So, I saw that as my mission, if you like. So, that’s why I’m on the show today, I guess, to help spread the word about the power of pricing.
John Ray: [00:02:58] Absolutely. And I think as we covered in the introduction, your focus is on several different sectors. Ours here on this show is on professional services firms, which you also have a wide experience with. Talk about from your perspective how bad the problem of inadequate or poor pricing is for professional services firms.
Mark Peacock: [00:03:26] Yeah. I think it starts with the point that people running these businesses are generally brilliant at what they do, whether they’re a marketing consultant, a lawyer, an accountant, an advisor, a consultant, whatever it is. They’re brilliant at what they do. But more often than not, particularly when it comes to pricing, they are a bit scared about it and they just default to the same method of pricing that everybody else in their industry uses. So, hourly rates, and daily rates, and project fees and things like that.
Mark Peacock: [00:04:04] And they don’t really put the thought that they need to into what’s the best pricing strategy for me. And the extent of that thought process is really, What’s my hourly rate going to be? Is it $50? Is it $500? Or is it $50? You know, where do I sit on that scale? And there’s a lot of hand wringing and worry and consideration. And then, we eventually settle on a number, whatever it is, and then we stick with it. So, we’ve gone through that hard question of what’s my hourly rate? And we don’t want to go through it again. So, we don’t move on any further.
Mark Peacock: [00:04:49] And in terms of how prevalent, it is what I think it’s right. You know, show me a business in the sector that’s got an amazing pricing strategy. And I’ll be quite surprised, people might be doing quite well with their pricing, which is great. But then, the question is, well, how much better could it be? So, yeah, there’s a lot. That’s why I’m passionate about what I do, because I think there’s a lot of people in this space that need help with their pricing.
John Ray: [00:05:19] How does someone that’s not an expert like you are, who has their own practice, how do they know they need to raise their prices?
Mark Peacock: [00:05:34] For me, the biggest indicator is the answer to the question, When did you last put your prices up? If the answer to that is more than a year ago, then you’re going backwards in terms of where you should really be. Now, we’re all aware of the threat of inflation, rising costs, rising prices. I’m sure it’s just as bad in the U.S. as it is in the UK at the moment for all sorts of reasons.
Mark Peacock: [00:06:07] So, if you don’t really think about it, people are unaware of the damaging effect of inflation over time. So, if I give a very quick made up example basing it on UK figures, $100 from ten years ago is not worth $100 today. It’s probably worth only about $70 in equivalent buying power. So, if you haven’t put your prices up in ten years, you’ve lost up to $30 in value, in buying power, that you would have had ten years ago.
Mark Peacock: [00:06:45] And the longer it goes on, the worse it gets, because you might think that inflation is only two or three percent – I’m not sure what it is in the U.S. at the moment – but that erodes the power of your dollar every single year. So, if you don’t do anything about it, you might think that the way to overcome that is to grow your business, is to sell more. You can do that, but your net margin is still deteriorating.
Mark Peacock: [00:07:11] So, I think the first question I always ask people is, When did you last put your prices up? Normally, always more than a year. People often say, “Well, probably three years ago we last put our rates up.” And often you’ll hear people saying, “Well, we haven’t put our prices up in ten years.” And that’s a big red flag for me. So, if that’s the case, then you really need to think about doing something about it.
John Ray: [00:07:40] Yeah. And I’m going to come back to what you said about if it’s been less than a year, because I’m sure there’s some folks that are probably shrieking at horror thinking about raising their prices every year. But I want to come back to that. But I want to talk about the reasoning behind why price increases don’t occur. And I assume fear is the biggest reason. But do you agree with that? And if so, why? And if you see something else, please comment on that.
Mark Peacock: [00:08:13] Yeah. Totally. I totally agree that fear is the underlying reason why people do not put their prices up. They might think it’s something else. They might think it’s due to market situation, increased number of competitors, my business is growing so I don’t need to. But the underlying reason is fear.
Mark Peacock: [00:08:38] And that’s because when it comes to thinking about that awkward conversation that you’ve got to have with your customers, people are scared. We’re scared because we don’t want to upset our customers. And if we do put our prices up, we don’t know how our competitors might react. So, all of that is going to affect our ability to achieve our revenue targets. And we might also lose out on new sales in the future that we would have got at our old prices.
Mark Peacock: [00:09:10] So, the conclusion, the thought process is, it’s far too risky. I don’t want to rock the boat. You know what? I’m just not going to bother and I’m going to focus on other things to grow my business, if that’s important to me. So, better marketing campaign, new products, recruit more salespeople, invest in new systems, whatever it is. There’s a whole load of things people will do to grow their business before they look at pricing.
Mark Peacock: [00:09:40] The pricing is the most powerful lever, as you know, John. So, it’s a shame that the fear gets in the way. Ignorance, I think lack of awareness of how to do it is another big factor, because that doesn’t get taught in business school, does it? You don’t do a module on how to increase your prices. You might remember what you learn about supply and demand and microeconomics, but that’s of no use at all in this situation. So, yeah, fear and lack of awareness, I think, are big factors in stopping people putting their prices up.
John Ray: [00:10:15] And unlike those that are in manufacturing, let’s say, that produce a product, what’s being sold for a professional services provider is what’s between their ears. So, it’s highly personal, right? I mean, it’s like you’re putting a price on your forehead, if you will, for people to say no to. And I think as much as people don’t want to admit that’s what’s happening, that’s really the way they feel down deep, right?
Mark Peacock: [00:10:45] Totally. And I think that’s also what holds people back from reviewing their pricing, because they take it very personally. And if somebody says no to the price increase, that’s a personal rejection. What I try and teach my clients is to separate the person from the product. So, think of it, this is the service I provide, it’s a product, and it has a price. And the best strategy, of course, is to provide options on our product range at different price points.
Mark Peacock: [00:11:17] So, it changes the conversation from the seller from “Will you buy from me, yes or no? And my rate is $100 an hour” to “Well, here’s the range of options that I provide, which one of these best meets your needs or the price you’re willing to pay?” So, it depersonalizes that link between the amount they’re paying you and your own self-worth and self-value. So, you need to get into that mindset of separating the two things and thinking about your pricing more carefully will enable you to do that.
John Ray: [00:11:53] Yeah. I just love that. I mean, because it really turns the conversation into yes or no. It’s a binary kind of thing into let’s talk about what your options are and you make the decision. And I, as the service provider, in a way, I don’t care what selection they make. Because I’m giving them options and they’re picking the one that fits best for them.
Mark Peacock: [00:12:21] Exactly that. And the best way to achieve that is rather than selling an hourly rate – so, let’s say I’m a website designer and I design websites for a living, and my hourly rate is $500 a day. And I estimate the job is going to take ten days, so $5,000 in total. So, rather than me pitching to the client and say, “Well, look, I charge $500 a day and it’s ten days, do you want me to do it, yes or no? And it might take more than that” – far better to just turn that into a project fee.
Mark Peacock: [00:12:51] And say, “Well, look, I’ve estimated the requirements. These are your objectives. This is what I can do. This is how it will look. And the overall project costs to meet your requirements is £5,000. By the way, if you want an enhanced version of what I can do, here’s another option with a load of extra services and features, and that’s £7,500.”
Mark Peacock: [00:13:14] So, you’re immediately moving away from “I charge $500 an hour” to “Well, here are two options. Which one of these best meets your needs at the price you’re willing to pay?” And of course, we’re using a few psychological pricing tricks in there, John, by high price anchor, which I’m sure you’re aware of. And that’s highly useful in terms of positioning the quality of what you do and allowing people to reference that to make a choice.
John Ray: [00:13:42] Yeah. I want to get back to options here in a second, but before we leave, I guess, the psychology of the service provider, let’s talk about ignorance. And as you said so well, the folks we’re talking about, those that are listening to this conversation, are brilliant people in what they do. But could that ignorance be what we’re talking about is the lack of understanding of a client’s perception of value and that’s where that ignorance is based. Is that what you see?
Mark Peacock: [00:14:21] I think it’s both facts and the lack of awareness of other ways to price what you do. I mean, if you work in a marketing agency, you’ve been trained to estimate hours and you’ve got a ladder of hourly rates, depending on your seniority. And that’s just the way it is. It’s the same in legal firms, accountancy, it’s just the same approach. And nobody takes the time or effort to think, “Well, is there a different way to price out what we do?” And we just get so used to pricing using that methodology.
Mark Peacock: [00:14:59] But you’re absolutely right, in terms of understanding customer value, that’s another area that people really struggle with. And the best way to think about this is, let’s say, I’m that website designer again and I’m charging $500 an hour. And if I’m [inaudible] a very small business, [inaudible], but they really love my help. Well, their ability to pay is very low, but they might perceive high value. Whereas, at the other end of the scale, you might have a much larger business as a client who thinks, “Oh, yeah. £500 a day, that’s a bargain. Let’s crack on.”
Mark Peacock: [00:15:41] So, if that’s the case, if that’s what happens in your market, why on earth would anybody try and sell the same price to both types of customer? It makes no sense if you think about it like that. Because people do perceive value in very different ways, and we need to adapt and adjust our pricing response accordingly. That doesn’t mean just saying, “Well, I’m going to charge you $300. And I’m going to charge you $500.” It needs to be more intelligent than that.
Mark Peacock: [00:16:15] But, yeah, understanding customer value is where really it all starts. And I think that is hard for people in this space. But there are ways and means to go about doing that.
John Ray: [00:16:27] Yeah. And we may get to some of that, but we want to get focused on how to increase prices because a lot of folks are struggling with that, knowing they maybe need to. And I think we talked about competitors and how folks are really focused in on what their competitors are up to. And the competitors are afraid, too, so how can I increase my prices, Mark, if my competitors aren’t?
Mark Peacock: [00:17:00] Yeah. That’s a really good question. I think the problem starts with the assessment that we’re all charging roughly the same price in terms of an hourly rate, whatever the number is. So, if I’m charging $500 and my nearest competitor, let’s say, they’re exactly the same price, how on earth can I get away with putting that up to $550 or $600? That feels difficult. Why would I want to do that? That makes no sense businesswise, because I’m going to lose business to those guys down the road and I’m not going to win any new contracts.
Mark Peacock: [00:17:40] Well, this is the problem with selling on an hourly rate or a daily rate, because you’re allowing the buyer to make it very easy to compare your rate with somebody else’s rate. So, the first step is turning it into options, or packages, or bundles. And that immediately sidesteps the easy comparison for a buyer to say, “Well, they’re £500 an hour and you’re telling me you’re £600 an hour and you turn it into a bundle?” Well, it’s $5,000, it’s $10,000 or whatever the number is, that’s far better, I think.
Mark Peacock: [00:18:18] In terms of how we go about this, the best advice I can give is, if you can understand your customers in terms of [inaudible] you need to do that. But in terms of the competitors, my advice is people get too worried about what competitors might or might not do.
Mark Peacock: [00:18:44] And whilst it’s important to know where you sit versus your competition, and particularly in terms of your price positioning, then get hung up on it. And if you feel your product or service has a high value, you have a good reputation, you have a strong brand, and you have lots of referrals and recommendations, then focus on that, first and foremost. And work out a plan to improve your pricing, not necessarily increase, but improve your pricing across your mix and let the competitors worry about it for themselves.
Mark Peacock: [00:19:24] I think all too often people, they anchor their pricing to the competitors. But why would you let somebody else determine the most important value lever that you’ve got that you can control, which is your price. And then, if you’re not sure, try and work out ways to improve your value proposition. Do I need to invest more in my branding, in my marketing? Do I need better systems to offer a better service? Do I need more people to support what I do? And all of that enhances and justifies the product that you’re selling unique to the needs and the market that you serve, rather than worrying about the customers.
Mark Peacock: [00:20:06] So, I guess my best advice there, John, is just forget them for a second and just crack on and sort yourself out. And then, worry about them further down the line. What do you think to that?
John Ray: [00:20:18] I couldn’t agree more. And, to me, that you’re focused on the wrong crowd. But you said it, instead of worrying about your competitors, focus on your customers. Go ask them why they’re doing business with you and you’ll be amazed at what you’ll find out, right? You will find out reasons that you’re delivering value that you didn’t even think of, right?
Mark Peacock: [00:20:41] Yeah. Yeah. Absolutely. And the other reason to do it like that is, you might flush out some really important things that you need to know about. So, if you do everything that we suggest and you go out with a very thoughtful price increase campaign, and you get some feedback from people that say, “Well, look, we’re not happy.” Well, what does that tell you? But what it probably tells you that it’s not actually the price that’s the problem. It’s the underlying quality of service or the product offering that you’re selling. That’s the real problem because they’re unhappy with it.
Mark Peacock: [00:21:17] So, the price of value equation has now gone out of balance in the eyes of the customer. Before, they were okay with the price value ratio, but now it’s tilted in the direction they don’t like. So, you need to know that so far better to have those awkward conversations and find out these things, than just carry on regardless. And, eventually, you’ll lose customers and business because you don’t understand why people are leaving.
Mark Peacock: [00:21:48] So, yeah, another good reason I think to tackle your pricing at least annually, I would say, to make sure you know what your customers really value. That’s my observation on that I think, John.
John Ray: [00:22:00] And then, on the positive side, you may have value that you’re delivering in ways that you don’t even think about. I mean, I’ll give the example of the accountant, that people do business with that accountant, not because they’re technically at the top of their game, which they are, but because they can explain difficult concepts in a way that folks can understand. I mean, I hear that a lot. And so, that’s a highly valued skill that that particular practitioner might not think about.
Mark Peacock: [00:22:45] Absolutely. And that’s a great point. So, it’s the soft reason why people are actually, “I love working with John because he explains things really clearly.” So, if John, the accountant, could turn that into a positioning statement and be very clear about the market, the people that they serve, and why he is particularly good for them, that will justify a price premium. Because people would be willing to pay more for John, the accountant, who’s brilliant at explaining difficult technical problems than the other guy down the road who just completes the books and sends in your tax return and doesn’t really explain things.
Mark Peacock: [00:23:27] So, really understanding that and having then the confidence to take that back to your business and say, “Yeah. Look, we’re really good at this. We should be pricing in line with the value that we’re offering because our customers see that value and are willing to pay for it.”
John Ray: [00:23:48] So, in terms of introducing options as a way to increase your pricing, and it sounds like there’s a process here, Mark, in going from hourly to introducing options. So, should I increase my hourly rate in the meantime while I’m preparing to introduce options?
Mark Peacock: [00:24:18] I would say not. Because if you don’t know where you’re trying to get to, you might make a mistake. Pricing is a long term game. Every single decision you make on your price today, or tomorrow, or next year will affect your business for years to come.
Mark Peacock: [00:24:37] So, for example, if we say, my hourly rate is $100 an hour. That’s your core price positioning then set for the next three to five years. And it’s very hard to move up from there. If you accept a deal and you knock a few dollars off because you really want it, well then you’ve lost that revenue and it comes off your bottom line for the next one, two, three years. So, every decision price is a long term game.
Mark Peacock: [00:25:06] So, I wouldn’t just rush ahead and increase the hourly rate without having thought through where do I want to get to in terms of my pricing. I think it’s far better to do that detailed work. It doesn’t have to be onerous or difficult. And you can come up with some ideas around options fairly quickly, evaluate the pros and cons of each, and then think, Where are we going to go with this? When are we going to do it? And is that acceptable to us as a business? I think that’s what I’d say on jumping too soon on that, John.
John Ray: [00:25:43] Got it. And what are the characteristics of successfully segmenting your clients so that you can introduce options that fit? And how important is fit with your current clients versus the clients you hope to get?
Mark Peacock: [00:26:07] Yeah. So, the simplest method that I talk about is to think about your market in terms of three different levels of price segmentation, high, medium, and low. So, every market, all of your listeners, all of their markets, will always have three levels of price willingness to pay.
Mark Peacock: [00:26:27] So, in the low segment, you’ve got your customers who are price sensitive. So, they have a low willingness to pay either because they can’t afford what you do. Or they don’t see the value in it, which is a different question.
Mark Peacock: [00:26:41] And the high willingness to pay segment, you’ve got customers that are willing to pay more, relatively speaking, for what you do because they value things other than price. They value your brand, your expertise, your reputation, the level of service you provide, whatever it is.
Mark Peacock: [00:26:58] And then, in the middle, you’ve got the core of your market, which is those people who don’t want to play at the cheapest end of the range but can’t afford the more expensive end of the range. And if you can design three options that fits each of those segments, you’ll be in a very good place, and that could be based around a package of services.
Mark Peacock: [00:27:23] So, one digital marketing agency I worked with had three bundles. An entry bundle for start up businesses for digital and design services. A medium bundle for existing businesses who were happy with where they were at with their marketing but wanted to take it up a level. And then, a premium bundle for investors and high growth businesses who were like, “Look, we’re totally ambitious. We want to go for it, basically.” And there were increasing components to each of these bundles. And, obviously, the fee went up, whether it’s a project fee, or a monthly retainer fee, or whatever it is.
Mark Peacock: [00:28:11] And the beauty is, when you now go out to market and sell like this, whoever you meet, you can basically say, “Well, here are the three options we have or here are three typical options. Which one of those best meets your needs at a price you’re willing to pay?” And you really don’t mind if the really wealthy buyers buy the cheapest package or the guys in the startup buy the most expensive package. You don’t mind. You might be slightly surprised.
Mark Peacock: [00:28:38] But it’s entirely their decision because they feel in control of that buying decision, which option might I choose. And it moves the buying process on one stage from “Am I going to buy from you, yes or no?” to “If I do buy from you, which option might I buy?” And that’s why options are so powerful.
Mark Peacock: [00:29:00] I always say one of the most important parts of pricing is choice and freeing your customers well-designed choices of price will do far more for your business than anything else. And three is the magic number, as we know. Two is okay, because it’s more than one. Four might be okay, but you’re probably getting into the territory of that’s too many.
Mark Peacock: [00:29:29] So, you can come up with three options that meet a broad range of customer needs. You’ll be doing very well. And you’re hedging your bets. You’re presenting a range of prices to the broadest spectrum of your market in terms of what they might be willingness to pay. So, you’re going to increase your chances of success.
John Ray: [00:29:52] So, I can hear folks now saying, “This is lovely, this conversation you guys are having about options, but how do options fit with increasing prices?” I mean, why does introducing options help me increase my prices?
Mark Peacock: [00:30:09] Okay. So, you could either just increase your price and, let’s say, it’s an hourly or a daily rate. So, let’s say one approach is to say, “Well, I’m charging $100 an hour and I’m going to put that price up by 10 percent. So, for next year, the price is $110 an hour.” So, that’s the traditional approach.
Mark Peacock: [00:30:28] The alternative to that is to say, “Well, if we can turn that hourly rate into packages, we can now go out to all of our existing customers and say, ‘Previously, we’ve been working on an hourly rate, but would now like to present to you some different options that you can consider.'” And it’s entirely their decision. So, I’ll use hourly rates for the sake of comparison, but it’s not really the best way to do it.
Mark Peacock: [00:30:56] But what I mean by that is, say for example, you now go out to your customers and say, “Well, if you want to carry on buying the same service, exactly the same, it’s $100 an hour. Or you can have a slightly enhanced version of that, which is $110 an hour. Or you can have the premium version of that, which is $130 an hour. Which one of those best meets your needs at a price you’re willing to pay?”
Mark Peacock: [00:31:19] And then, what you’ll find is that, certainly, your customers will stick with $100 product. But a proportion will upgrade to the 110 product. And maybe a couple will take 130 product. Because until you present that option to them, they can’t choose it, they can’t buy it.
Mark Peacock: [00:31:39] And then, if you can do the math, you can work out the weighted average increase. And what you’ll find if, say, 50 percent stay on the current rate, 30 percent by the £110 product, and 20 percent or less by the premium $130 product, your net average prices will have increased by between five and ten percent without you having to enforce an actual price increase on any of your customers. And that’s the power of choice.
Mark Peacock: [00:32:13] It’s that little bit of mass that works out the net effective price increase overall across each of the options. So, you can achieve increased prices by being more customer friendly, more tailored, and more responsive, and not upsetting your customers, which sounds a good way to do it. Why wouldn’t you do it like that if you know that’s the best way to do it?
John Ray: [00:32:41] Yeah. I mean that’s the proverbial having your cake and eating it, too, right?
Mark Peacock: [00:32:46] Yeah. Exactly.
John Ray: [00:32:48] Right.
Mark Peacock: [00:32:49] Sorry. Go ahead.
John Ray: [00:32:49] No. Go ahead, please.
Mark Peacock: [00:32:51] So, I was just going to say I’d use the example there by illustrating hourly rates. But, of course, that’s not the best way to do it. It’s far better to turn it into packages of options, which could be a monthly retainer, a monthly fee, a project fee, et cetera, rather than three different hourly rates. Just to clarify, I don’t want people thinking, “Mark said have three different hourly rates.” I mean, you can but it’s not ideal. I just wanted to clarify.
John Ray: [00:33:22] Thank you for clarifying that because I can see somebody getting that mixed up there. And so, talking about hourly rates, is this the way that I should make the jump from hourly? And should I make that jump with new clients only, or all of my clients, or just a few? What do you counsel on that?
Mark Peacock: [00:33:54] Yeah. It’s a good question. I always say when thinking about new pricing models, always think about new customers first, and then existing customers second. Because if we start by thinking about how can we improve our prices with our existing customers, we get tied up in knots because we just think, “Well, my biggest client, it’s going to be a nightmare talking about price increases to him, so I don’t want to do that.”
Mark Peacock: [00:34:22] So, let’s just put that issue to one side for a second and just think about new business. And the advantage of that is you can start with a blank sheet of paper, because none of your prospects or potential customers at this stage will know what your pricing is. So, you can go to them with a totally new price proposition and try things out. So, you could say, “Well, I’m just going to try out this new pricing approach on new customers only for a couple of months until I get confident with it. And then, I’ll bring it back to my existing customers and work out how we could apply it to them.”
Mark Peacock: [00:35:00] So, yeah, I always encourage folks to think about pricing for new business first, and then come back to your existing customers, and then seeing how you can translate or migrate the existing customers on to the new pricing model. And it just makes life a lot easier as well. They can have more fun because they’re new customers. So, let’s design something that’s really going to float their boat and meet our commercial requirements in terms of revenue and profit.
John Ray: [00:35:34] Let’s shift gears here, Mark, and talk just in general about how to communicate a price increase. And you’ve written and spoken on this. Let’s talk about issues like notice period, how much notice should I give? And just the communication of that, how that should unfold.
Mark Peacock: [00:35:59] And this is just as important as working out what is my new price. How you communicate and articulate and justify your pricing is as important as how you set the number. And when it comes to price increases, I think there’s a number of elements of good practice that businesses should follow.
Mark Peacock: [00:36:19] So, talking about notice period, so what’s a good what’s a reasonable notice period? So, for me, anything less than 30 days notice of a price change is a bit unreasonable. If you’re on the receiving end of a price increase and said, “Hey, John. We’re going to put our rates up effective tomorrow.” You’d be like, “Okay. Well, I haven’t budgeted for that and I wasn’t expecting it, so I’m a bit I don’t like that.”
Mark Peacock: [00:36:48] So, my advice is always minimum 30 days, even better, two months notice. So, if you can put your prices up, let’s say in January, the start of the calendar year, you need to be writing to your customers or emailing them or communicating with them by the end of October. Now, this seems quite far out, doesn’t it? “Oh, my God. That’s quite a lot.” But what it does is it gets your mind, your brain, your business geared up properly to manage and handle that price change, that price increase. So, by October, you need to have done the thinking about how you’re going to implement and apply this price increase. So, that’s what I’d say on timing.
Mark Peacock: [00:37:35] And the second reason for doing it like that is, again, it flushes out any disgruntled customer. So, you’ve got more opportunity to rescue that client and either do something bespoke for them. Or if you find that the two parties, there isn’t a meeting or there isn’t a good fit, then maybe it is time to part ways. I would say it’s far better to have 97 customers paying a higher rate than 100 customers at a lower rate. You’ll be better off financially, and you won’t be working as hard. So, what’s not to love about that?
Mark Peacock: [00:38:19] In terms of communication, it depends how many customers you have. For example, if you have hundreds or thousands, then you need to be doing some kind of mass communication, email, or letter. If you only have a couple of dozen, you can probably pick them off one by one verbally on a phone call, if you’re comfortable doing that. But get your script ready. And I don’t mean a script in the specific sense of saying something word for word. I mean, a guideline script. So, get your reasons ready. And this applies whether it’s a verbal conversation or a written communication.
Mark Peacock: [00:38:58] So, the way I would always position a price increase is as follows. We start with an acknowledgement that costs have risen. Now, in the current climate, and I’m sure this is the same in the U.S. as it is in the UK, prices are rising, costs are rising significantly. So, that is to your advantage because businesses, your clients, your customers, are aware that this is a problem at the moment.
Mark Peacock: [00:39:29] So, we can say something like, “As I’m sure you know, costs are rising at the moment and we need to move our business forwards to keep pace with the growth of our business,” or something like that – I didn’t word that very well. But we need to acknowledge upfront that cost is an issue. But once we’ve done that, we then move on to what that means for the customer. So, we only dwell on it very briefly, but then we move on to what does that mean for you. So, we can talk about the proposed price increase at that stage. “So, from next January or next April or next September, the new pricing will look like this, blah, blah, blah.”
Mark Peacock: [00:40:16] And then, it becomes a sales task. A price increase is a sales job in the sense that you have to remind and reinforce and reconvince all of your customers why they should continue to buy from you. So, we remind them of all of our strengths, all of our USP, all of our qualities.
Mark Peacock: [00:40:37] For example, “We are still the number one accountancy in our area. We specialize in providing friendly, easy to understand advice that meets the needs of your kind of business.” Or, “We’re the most creative marketing agency and we’ve won loads of awards and we are delighted to work with X,Y,Z and look forward to coming up with more ideas for you next year.”
Mark Peacock: [00:41:04] So, you’ve got to sell hard on the reasons and the benefits that people chose you in the first place. And update them, if you can, and remind them that that’s why they chose you in the first place. And then, you let them decide. Don’t play the hard sell in terms of where you’ve got to switch to our new pricing from next January. Let them decide. Because they are in control, so let them decide. And give them an out. If they don’t want to carry on, then say that’s fine. You know, “It’s been great working with you, but if you don’t see the value in this, then fine.”
Mark Peacock: [00:41:46] So, I’d be very gentlemanly about it, very professional, and treat people courteously, basically. So, I hope I’ve talked through the key stages there clearly, John. So, acknowledge the reason for the price increase. Costs are rising, explain what impact that is going to mean for the client as quickly as possible. Get it upfront. And then, thirdly, resell benefits as to why they should continue to work with you. Does that make sense?
John Ray: [00:42:18] Yes. Absolutely. Now, one post you made that discussed this, you applauded the idea of, in that first communication, not disclosing what the price increase would be. And I’m sure that’s shocking people to hear that. “You mean I’m going to tell people I’m raising price, but I’m not going to tell them how much? And isn’t the client going to ask me how much?” So, talk through that for us.
Mark Peacock: [00:42:54] Yeah. So, this is an even better price increase strategy. I’ve used it with my clients. And in the LinkedIn post I did, I was referring to my mobile phone provider, Virgin Mobile. And it’s exactly the same approach. And it’s a two stage communication process.
Mark Peacock: [00:43:14] So, stage one is we give all of the explanation and all of the reasons why our prices need to go up. And remind people of all the benefits of why they should continue to work with us. But we don’t tell them what the actual price increase is. All we say is, “We’re going to write to you next month and confirm you new prices for next year.”
Mark Peacock: [00:43:39] So, let’s say we write that first stage communication in October, and then we write the second stage for implementation in January, and then we write a second communication in November, and say, “Dear Mr. Customer. Following our communication last month, we’re pleased to confirm your new prices for next year as follows.” And then, you list them on the page.
Mark Peacock: [00:44:01] And what that does is a number of things. So, it manages expectations because the client now knows, “Okay. I’ve got a price increase coming.” It will flush out some early objectives. So, if you have any people that are particularly unhappy or want more detail, they will get on the phone to you or they will reply via email so you can start to have conversations with them.
Mark Peacock: [00:44:27] But most importantly, by the time they actually receive the price increase letter, which hopefully has some options in, in their mind, they’ll be thinking, “Oh, god. Is John going to push his prices up by – oh, gosh – it could be between ten and twenty percent maybe? I’ve heard of other people doing that in similar areas.” And you come along and it’s only eight percent and they go, “Oh, okay. Well, it’s not so bad then.” They still might quibble at this point. This is real life. This is grown up stuff. They still might argue at that point once they know what the real number is.
Mark Peacock: [00:45:03] But it’s a far better process because you’re being courteous. You’re letting them know where you’re at with your business. You’re also demonstrating courtesy by using this two stage process. And helping them get to grips with their planning, their forecasting, because they’ve got to think about their budget for next year.
Mark Peacock: [00:45:25] So, if they spent $5,000 a month on marketing fees, they need to know it might go up to five-and-a-half thousand. So, let’s shove that in the budget. And then, when the agency comes along and says, “Well, it’s only $5,300.” “Okay. Fine. Well, we’ve made a little saving.”
Mark Peacock: [00:45:43] So, I love that two stage process. Virgin did it to me for my mobile phone. I could see exactly what they were doing. But, of course, by the time the actual price increase came along, it was only an extra $0.93 a month on my mobile plan. I did the same thing for a manufacturing company. They had 300 customers, and it worked really well for them. So, no reason it can’t work for anybody in the professional services industry as well.
John Ray: [00:46:14] Yeah. That’s a really important thing you just mentioned, the psychology of it is that people assume the worst. And the worst is probably always a whole lot higher than what you’ve got in mind as a service provider. So, I love that.
John Ray: [00:46:34] We’re kind of running down on time, but I want to ask you one quick question before we wrap. Back to this business of raising prices every year, so I can hear people saying, “I’m going to be writing letters all year long here if I’m raising prices every year.” Talk about why you think that’s important as opposed to just one big increase every few years.
Mark Peacock: [00:46:59] Okay. So, far better to raise your prices on a regular pattern of frequency. So, do it once a year, every year, even if it’s only a couple of dollars or a couple of percent. And part of the reason for doing that is (A) you get your business into the habit of doing that, but you also train your customers to expect it. Even better, in your standard terms of business, you should have a clause that says, “We will increase our prices every year by an amount linked to inflation,” so they know it’s coming.
Mark Peacock: [00:47:34] So, get into the habit of doing it regularly. Do it the same time every year, whether it’s January, or April, or whatever works for you. And if there is a common habit in your industry, follow that common habit. So, if your industry generally puts prices up in January, do it in January, not in June. Because you’ll stick out like a sore thumb if you do it in June and everybody else is doing it in January.
Mark Peacock: [00:48:02] So, far better that than waiting three years and saying, “Oh. Sorry, guys. Prices are going up by 20 percent next year. We haven’t done it in three years. I hope that’s okay.” Far better, regular, small, frequent changes rather than big changes that are going to disrupt your business cycle. So, that’s my advice on that, John.
John Ray: [00:48:24] Okay. Awesome. Wow. You have shelled out the value today, Mark. And, folks, I think listening to this, you’ve gotten thousands of dollars worth of value here from Mark at no charge. So, thank you for that. But for those that want to dig deeper, learn more about your services that you offer, and maybe ask some questions, can they get in touch? And if so, how can they do that?
Mark Peacock: [00:48:55] Yeah. Of course. So, they can find me on my website which is pricemaker.co.uk. And if you go on there, there’s a pricing challenge and you click on it. It’s a self-assessment and you get a scorecard on your pricing capability. So, fill that in and it will give you loads more value. And you’ll find my contact details on the website as well. So, that’s pricemaker.co.uk.
John Ray: [00:49:21] Terrific. Mark Peacock, folks. Mark, it’s been a pleasure and thank you again for coming on and delivering so much value.
Mark Peacock: [00:49:31] Yeah. It’s been a pleasure, John. I always love talking about pricing, so thank you for inviting me today.
John Ray: [00:49:36] Thank you. And friends, just a reminder, if you’d like to hear more of this series, go to pricevaluejouney.com. And to connect with me directly, just send an email, firstname.lastname@example.org. Thank you for joining us.
About The Price and Value Journey
The title of this show describes the journey all professional services providers are on: building a services practice by seeking to convince the world of the value we offer, helping clients achieve the outcomes they desire, and trying to do all that at pricing which reflects the value we deliver.
If you feel like you’re working too hard for too little money in your solo or small firm practice, this show is for you. Even if you’re reasonably happy with your practice, you’ll hear ways to improve both your bottom line as well as the mindset you bring to your business.
John Ray, Host of The Price and Value Journey
John Ray is the host of The Price and Value Journey.
John owns Ray Business Advisors, a business advisory practice. John’s services include advising solopreneur and small professional services firms on their pricing. John is passionate about the power of pricing for business owners, as changing pricing is the fastest way to change the profitability of a business. His clients are professionals who are selling their “grey matter,” such as attorneys, CPAs, accountants and bookkeepers, consultants, marketing professionals, and other professional services practitioners.
In his other business, John a Studio Owner, Producer, and Show Host with Business RadioX®, and works with business owners who want to do their own podcast. As a veteran B2B services provider, John’s special sauce is coaching B2B professionals to use a podcast to build relationships in a non-salesy way which translate into revenue.
John is the host of North Fulton Business Radio, Minneapolis-St. Paul Business Radio, Nashville Business Radio, Alpharetta Tech Talk, and Business Leaders Radio. house shows that feature a wide range of business leaders and companies. John has hosted and/or produced over 1,100 podcast episodes.