Should You Increase Your Rates During a Recession?
But what if you can’t afford to slash your rates? If you’ve got bills to pay and a family to feed, you may not be able to cut into your profits.
In fact, you may need to do something that is completely opposite and different from the standard way of thinking – you may need to increase your rates.
The question then becomes: Is it the right thing to do? Should you increase your rates during a recession?
In this blog post, Mark Phelps of ActionCOACH shares his take on a recession, and he answers a question that many business owners struggle with: Should you raise your rate(s) or price(s) during a recession?
A Recession Is a Perception
Mark argues that a recession is a product of the mind. It’s a perception.
“If we perceive others to be in a recession, it’s a lack of faith in growth,” said Mark. “We perceive a recession perhaps when we see a downward trend or we struggle to get business in the door.”
To switch up this mindset, Mark recommends to first take responsibility.
“The first thing to do is to make sure to take ownership, accountability, and responsibility for how to pivot and how to find growth in a time where what you were doing before is no longer working,” said Mark.
Instead of playing the blame game and making excuses, it’s important for business owners to take ownership.
After all, some business owners make a lot of money during a recession, and others struggle. The same rings true during boom times.
“Make sure to have the right mindset and ask the right questions, ‘how do I go to market, and how do I aim to grow regardless of what is happening in the larger market’?” said Mark.
“It’s dangerous to get stuck in building the case for why you should quit. You’ll want to work on building the case for how you’re going to change, grow, and adapt.”
A positive mindset is key.
Value-based selling is another important element to consider when restructuring your prices.
“The question of whether you should increase your prices really comes down to whether or not you’re adding more value,” said Mark.
If you add more value and benefits to your customers, the price increase can be justified.
However, Mark advises to keep the increase within range of your previous price point.
“When determining your rates, you’ll want to look at your numbers, including your breakeven, profitability, and margins to make sure that you’ve factored in all of your costs.”
“Especially with COVID, there are more costs associated with business operations now, and the appropriate thing to do is to raise your rates so that those costs are factored in,”: said Mark.
While you should do your due diligence in looking at your prices, Mark asserts that you should mostly focus on connecting with your market and selling based on the benefits that you bring to it.
“What are the solutions that you provide? What are the experiences that you make better or easier than the competition? It’s a great time to focus on developing your unique value proposition, communicating your ‘Why,’ refining your target market, and making an offer that really meets the needs given the wider market,” said Mark.
While every organization has unique challenges, there are situations in which the owner should without a doubt raise their prices.
In other situations, where the target market is hit particularly hard, Mark suggests focusing on developing relationships for the long-term strategy.
If you’re struggling to determine whether or not your business should raise its rates and prices during a recession, contact Mark for a free, 20-minute consultation.