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Is There A Good Time to Raise Prices and Is Now the Time?

July 1, 2011

I'm currently wrestling with a couple of my clients about raising their prices. Is it safe? Will it risk business? How are our guests going to respond? We're still in economic recovery. Money-wise, our clients are in that weird space about whether they should be spending money on guilty pleasures. Groupon has shown us what guests are willing to pay for services. They are looking for results and a bargain. And yes, price matters. 

One of the toughest decisions we have to make as a business owner is how much to charge for our services. What we charge defines us as a business. It places us among our competition, it establishes the expectations or our guests and it defines our profitability. So, now that business is trending upwards and we're starting to feel like things are moving in the right direction, we're looking at our service menu and wondering if we should be raising our prices. No pressure. 

Let's talk about service pricing and when is a good time to raise them. Pricing services requires an understanding of guest value, competition, and direct costs. 

Study your competition. Yes it's about market rate and where your pricing fits among comparable businesses. The service pricing conundrum. Being the highest price in the market may be your marketing strategy, however it raises guest expectations. When you charge the most, you are expected to be the best in terms of service, quality, and guest experience. Being the lowest in the market might be your marketing strategy and does not necessarily mean that you get what you pay for. It could mean that you charge a lower price and provide a great value. But if your competitors are charging more than you are for comparable services, are they as busy as you are? Where do you want to be perceived? These are tough questions you need to answer. 

Know your costs. Be crystal clear of what it costs you to perform your services. Supplies, labor, payroll taxes, laundry, and other direct costs must be defined. Gross margin (Sales minus Direct Costs) of 35-40% is good. Higher than that is great. Gross Margins greater than 50% may be part of your marketing strategy, but you may want to take a good look at the value you are providing for your guests. Just because you chose to charge a certain rate for services doesn't mean guests are going to feel good paying it. 

Supply and demand. What is the occupancy of your treatment rooms? Are you operating at 60-70% capacity? If you are full and your guests are unable to book services because you are packed to the gills, now you can rationalize increasing prices. 

Gently, Gently. Make sure you have a clear understanding of what your guest is experiencing. Never forget that guests expect and are willing to pay for value and results. If raising prices is the correct and appropriate business decision, raise them. If you chose, after careful evaluation that raising prices is something you want to do, do it gently. An across the boards increase may alarm your guests. Consider phasing increases in and consider providing a loyal guest price freeze for existing clients. Look at your menu carefully and consider adding value by including some short services or add-ons to soften the blow. Remember that price matters and we are existing in a recovering, not a recovered economy. Your savvy competition is creative and would love an opportunity to lure your customers away. 

So, both of these timely issues are in need your attention. As always, if you want to talk, contact us. The first conversation is always free.

 

Call 888.727.5489 or e-mail us atMonte@WellnessCapital.com.

ProKnowledge Workshops from the Day Spa andInternational Medical Spa Association 

I'll be presenting "Budget Intensive – An Advanced Business Planning Workshop" and "Using Consumer Data to Deliver What Your Clients Want NOW!"

I am also honored to be seated on a panel discussion called "The Fusion of Well Being: What the Future Holds" with my colleagues Dr. Tamyra Comeaux and Alfredo Carvajal.

To learn more about the ProKnowledge Workshops, visitwww.ProKnowledgeWorkshops.com. I hope to see you in Minneapolis or Portland!