Years ago I was coaching a young entrepreneur that was just getting started with her business. As we talked about all the different things that go into running your first business, we landed on the topic of price. Her response to me was something I've since heard several more times.
I can always raise my rates later.
It's the hope and dream that everyone has, right? That at some future point, when so many people are accustomed to the tremendous value you've delivered, that it will be easy to raise your rates.
Raising your prices isn't easy
At this point I'd normally introduce you to a study that highlights what I'm going to share with you—a way to scientifically prove that we're all really easily anchored.
If you don't know what anchored means, it simply means we all learn to take things for granted very quickly.
But today I'm not going to do that. You don't need a study. What you need is a simple story that I hope you'll enjoy.
I lease a nice car. It's kind of what you'd call a fancy car. And one of the features of this fancy car is that when I walk up to it and grab the locked door handle, with the key in my pocket, it automatically unlocks.
I never had to click the unlock icon on my key fob.
I don't know if non-fancy cars have this feature. My old cars didn't.
Now, last week, while out having lunch I walked up to my car and the door didn't unlock. I've had this car for less than six months. But I was, momentarily, peeved by the fact that I had to go into my pocket and pull out the fob and click the unlock icon.
I said to myself that it wasn't a big deal and only a #firstworldproblem and moved on.
Until this weekend when I helped a friend move on Saturday. My buddy Steve and I had to head to the hardware store to pick up some additional screws to reassemble his bed, and when we walked out of Home Depot and towards his car, he complained.
“The door is supposed to unlock automatically but it's stopped working!”
And as we made our way to the spot where we were picking up food for the whole crew back at his new place, he pulled up the app that connects to his car and started looking for a way to fix it.
“I know it's silly, but I'm really annoyed by the fact that this doesn't work.”
I know exactly how he felt. It reminded us both, as we talked about it, of this video clip.
Even after a few months of enjoying something, it's easy to get so accustomed to it that we take it for granted.
That's why raising your prices isn't easy. At least with existing customers. Because they get anchored. Their expectations solidify and they expect that your price will never change. It's like it's been budgeted for that rate forever.
Two lessons from car dealerships
Since we're talking about cars, here are two lessons on raising your prices that you can take from car dealerships.
Charge more and anchor with a larger number
When I was leasing my latest car, they added an additional service that was a combination of roadside assistance with a bunch of other features I can't recall. The reason I can't recall is because I was there to lease a particular car. I didn't care about the other little stuff. But they rolled it into my lease—at least for the first three months. They do this automatically and ask for your credit card upfront for renewals (which I'm sure I could cancel).
But the whole lesson is simply this—they were able to get away with charging more than normal (instead of discounting) because the additional fee they were tackling onto my lease represented less than 4% of the lease fee.
I'm not saying they were tricky. They weren't. They were very upfront about everything. But in the context of a larger decision, the little one was silly and not worth debating.
Do you sell maintenance services? If you do, anchor the monthly to the larger cost of the initial development rather than waiting to talk about the service after you've finished all the work.
So instead of charging less hoping to raise it later, charge more upfront, but anchor it with a larger number.
Create decision points
We all know we get anchored and locked in on a price. Until that deal expires. My lease will expire in another 18 months. When it does, I have no expectation of walking into the dealership, picking another new car and expecting it to be at exactly the same monthly price.
The dealership knows this too. They hope to have a new offering that is even better so that they can offer me “more for more.”
But the trick here isn't about more for more. It's about creating a decision point. By putting an expiration date on this agreement, we're both aware and expectations have been set that after that, it's time to look at a whole new deal—with new pricing.
So if you want to charge little now, and can't see yourself charging more, then at least create a term that will expire, so that you have another decision point with that client later.
If you're a product person that wants more info on pricing, I wrote something just for you.