Archive for December, 2008

 

Your Service Prices – Raising Them in a Recession

So you thought you’d be generous to your clients. Or maybe you were just too busy last year to do the work necessary to raise your service prices. Now with costs going up and sales going down, you just want to kick yourself for missing the opportunity. Don’t despair. It is possible to raise your service prices even in this economy.

Here are a few ways to raise your service prices in a recession.

Raise your ‘grandfathered’ prices. We each have clients who’ve been charged the lowest possible billing rate because they’ve been long time clients. Their billing rates can sometimes be half the rate of our new clients. We love these clients and want to keep them. You can raise these service prices with still a sizeable discount to your new service pricing. Just tell them that their prices have been so much lower than your new clients that a small increase now is still significantly less than what you charge new clients.

Raise, but give a returning client discount. One way to make a services price increase more palatable is to raise the prices for the NEW customers only. You then tell your existing clients that you are raising prices, but that their cost will remain the same for 6 months or a year. That way, they’ll feel like they got something extra, but will have been forewarned of an upcoming increase.

Don’t rescind those gas charges just yet. It may seem silly to keep your recently imposed gas surcharge when gas prices have fallen 60%, but think it through. You probably should drop the charge for now, but be ready to put it back in place when gas goes back over $3.00 a gallon, which may be sooner than you think. By the way, if you missed the boat during the last gas price run-up, get ready because you’ll have another chance. Gas will go back up sooner than you think. You can gain brownie points by telling clients you’ve temporarily suspended your gas surcharge, which makes you a hero now, but forewarns them the charges will be back sometime in the future. That’s the hardest part of installing a gas surcharge – how to tell your clients. By the way, according to Angie’s List, 91% of service companies raised their service prices or thought about raising prices in 2007 as gas prices spiked. So don’t get behind the ball next time.

Travel time billing. In a similar vein, if your billing rates do not include travel time, now is a good time to institute it. You may decide to institute this charge when clients are greater than 1/2 hour away or more than 20 miles, for example. With online maps and GPS’s so popular, it’s easy to tell how far clients are before you arrive, so you can tell them upfront. With costs going up, you can add 1/2 price for travel time, or only bill for travel time one way.

You haven’t raised prices for several years. If it has been three years or more, use that as your rationale. You can be self-deprecating as you do it. Say, “I missed my opportunity to raise my service prices for the last 3 years, but with costs going so high, I really need to put in a minimal increase.”

Add a little extra. Your service price is supported by the value your customers perceive. If you add a new feature that people have been asking for, a price increase will go down easier. For example, adding a monthly activity report, a free screening test, extended hours or a technology backup will add value to your service. Be sure to pick items that cost you very little to give.

Keep your prices the same. You may ask, “How is this a price increase?” With the discounting pressures going on in this recession, when it seems everyone is lowering their service prices, holding steady can be a big advantage.

Schedule the raising – so clients have a time limit at the old price. As the recession dictates, you may have difficulty raising your service prices right this moment. But you can say something like, “Even though my costs are increasing, I’ll be able to hold off raising prices until June, so my clients benefit.” You’ve now done 3 things: 1) communicating to your clients you’ll be raising prices in a soft manner, 2) given your existing clients a reprieve which they will appreciate, and 3) given yourself a timeframe commitment for that increase you want.

Bundle.  Don’t give up. If sales are just too far down to justify increasing prices and you are sitting with a lot of extra time on your hands, don’t despair. Can you bundle two or three services people need and give them a service price discount on the whole? You would end up with a larger total sale than you would have gotten otherwise.

These are just a few of the ideas I’ve recently seen for raising service prices in this recession. If you want to discuss further, drop in a comment or call me. Of course cutting costs is another way to raise profits, but there are several recent blog posts I’ve written on that subject. If you haven’t read them, check out: A Cunning Cost Cutting System for the Busy Business Owner  or Cutting Costs Now: 9 Hot Areas for Creative Small Business Owners.

See also The Lowdown on Raising Prices.

Now stop reading about raising service prices and start doing! Let’s create your personal profit strategies for growing profit. Call small business profitability coach Merra Lee Moffitt, CFP®. She can be reached at, 888-920-2030 or by email at merralee@captureprofits.com.

“Seek new clients, seize better income, capture more profit”

Posted by Merra Lee Moffitt, CFP under Increase Sales Tags: , , ,  •  No Comments

Cut Payroll without Losing Employees in a Service-Based Small Business

Just because sales are down or threatening to go down, doesn’t mean there’s less work. In fact, there may be even more work as you scramble to improve sales and develop faster and better service delivered more frugally. So how can we possibly cut payroll costs? Furthermore, we mostly like our employees, and don’t want to lose them. So, given that we want to reduce costs and payroll is often the largest small business expense, what can we do to cut payroll without losing valued employees? I’ll include some real numbers, so you can see we’re talking real dollars. According to the State of Working PA, the average PA salary at the end of 2007 (the most recent I found) was $14.85 per hour. I used an average overhead of 38% to account for all retirement, FICA, workmen’s comp., and so forth. Your numbers will vary. These numbers are rough, if you want help with estimating and planning, just give me a call.

You can cut payroll without losing employees, if you…

Stop overtime. You can make a blanket policy that there be no overtime without specific approval on each instance. This may require a little more precise thinking in your work scheduling to get everything done. A single employee, who works even 2 hours overtime per week, will cost you $3,078 per year in time-and-a-half overtime.

Cut hours across the board. It is possible to institute a 35-hour work week. So for example, everyone takes off Friday afternoons or half-days staggered throughout the week if you need coverage. That’s also a 12.5% payroll cost reduction. You might be able to soften the employee’s concerns with instituting a 4-day work week, 9-hour day so that they get one less commute day. This will save $5,336 per average employee per year.

Freeze wages. Okay not a cut, but telling people there will be no increases this year will keep your cost from increasing by $1,281 per employee, figuring a 3% raise on an average employee.

Close the office for a week. Some restaurants close when the owner goes on vacation. Some offices and factories close over the Christmas holidays. The employees must then use their vacation time or personal time, to cover. If they have none, it’s time off without pay. This strategy has the benefit that your other operating costs (heat, electric, etc.) can be reduced that week along with payroll. A one-week shutdown will cut payroll $821 per employee not including additional operating costs saved. One of my small business owner clients uses this time to do strategic planning for the next year.

Suspend the bonus. If you have a bonus program, make sure it is tied to profitability goals and increases in profits. That way if the company misses the target, you don’t owe the employees for the bonus. And if you and the employees do manage to maintain or build profits, you’ll be glad to share. A 5% missed bonus saves you $1,693.

Strengthen your project accounting. I have never worked with a client who was billing ALL the work their clients had agreed to pay. I’m not talking about clients who don’t pay. This is NOT SENDING THE BILL for work completed. See my article: Undercharging Clients Can Be a Chronic Condition.

One client had an average of 1/2 hour per day, per employee where the time cards did not match the job cards billed to the client. This is missed income that the client has already agreed to pay! If your hourly billed rate per employee is even a modest $40, you’re missing $5,000 in billings and possibly paying your employees $2,565 that you didn’t bill!

Send them home early. If you have a lull in the afternoon, send some of the employees home early. This has the benefit of helping to match the work level with the expense level as well as cutting costs. Even 2 hours a week per employee would save $2,050 in a year.

Be slow to rehire. If someone does leave, don’t rush to replace them. Take your time. See if the remaining employees can handle the load. Are there activities that are not critical right now as you spread that load to others? Come up with a sales or profit measure of when you really will need that employee replaced. If this person filled a critical, skilled position, such as accounting, see if it can be replaced with a part-time, temporary contractor or job share with a sister company. If you could delay hiring a replacement person by 3 months, you’ll get a total savings of $10,673.

Improve your time and attendance management. Make sure that you can account for the hours people actually work. Time Trex, an automated Payroll and Time Management system, claims to save an average of $1,095 per employee. A time clock will recover time and money lost by employees coming in late, taking long lunches and breaks, and leaving late to get overtime. Plus there may be errors due to manual calculation of timecards. Sadly, only those in the employee’s favor will go unreported. Even a 1% error factor can cut payroll $200 per employee per year. Check out Time Trex’s calculator.

None of these numbers can be considered chump change. If you want to cut payroll costs without losing your employees, these are worth considering and implementing. What are your ideas?

Now stop reading about how to cut payroll and start doing! Let’s create your personal profit strategies for growing profit. Call small business profitability coach Merra Lee Moffitt, CFP®. She can be reached at, 888-920-2030 or by email at merralee@captureprofits.com.

“Seek new clients, seize better income, capture more profit”

Posted by Merra Lee Moffitt, CFP under Collect Cash Tags: ,  •  2 Comments

Increasing Services Sales in Your Business in a Recession – 12 Techniques

Now is the BEST time to be in business for ourselves! Many people are getting laid off and those that aren’t are concerned they might be. There IS more security in being a small business owner because we have many clients, not just one employer. Here are some ideas for increasing your services sales during this recession.

You’ll be increasing services sales during this recession if you:

  1. Improve your product. Add an extra feature; something people have been asking for. Make sure your clients know you have it by mentioning it, sending out postcards, or putting up a sign. You’ll need to mention it to everyone you see especially if someone seems like they need your product. Selling the product increases the services sales that go with it.
  2. Improve the services. Make a checklist of complete delivery, all listed deliverables. Make sure every client gets the complete list of services. Contact clients after they purchase and offer them more service. Give them something more than you’ve ever offered before, and give it happily. Add a training component to your services, so your customers receive more bang for their buck.
  3. Add an ‘extra’ feature. Give the customer “something extra”. Throw in a free add on.
  4. Give a discount. But let them know you’re doing it. Everyone wants a discount. Try a 10% discount for signing up this month.
  5. Think what others need. Help others survive the economic recession, and make money at the same time. Figure out what your clients need and give it to them. People still spend money during a recession, they are just more careful about it. Win the contract by meeting the other person’s needs and following up on each and every contact.
  6. Think residuals. Develop and maximize residual income streams and passive income possibilities. Add a maintenance contract, a 6-month checkup or a yearly service that people need. That way you’ll be able to keep in touch and propose other services they might need.
  7. Advertise. Promote bargains or discounts without undermining the value of what you represent.
  8. Maintain professional and personal relationships. Have coffee with people who can be a center of influence or be an ongoing source of referrals. Send a thank you note or email after the meeting to leave them with a good impression. Find out what they think people need or what their clients need in your market. Make suggestions and offer to help.
  9. Be Creative. Analyze your business, products, and services. Consider how they can be tweaked to receive more demand in an economic recession. You can make money if you find a way to offer more value to your products or services.
  10. The law of reciprocity. People want to help others who have helped them. If there is someone you want to do business with, buy something from them first.
  11. Don’t fall prey to large free trials. Seldom do clients who were given free service become a paying client. Give them only a taste, a short analysis or a free consultation, but not the answers themselves.
  12. Ask for referrals. People who are happy with your service may know others like themselves. Ask for referrals on a regular basis. Have a referral card, a page after your invoice, or a question you ask at the end of each meeting. Let people know that you get a lot of referrals and it will become true.

Times are tough, but by thinking creatively you can generate more services sales in this recession and become even stronger after the recession is over.  Tell me how it’s going using the comments below.

Now stop reading about increasing services sales and start doing! Let’s create your personal profit strategies for growing profit. Call small business profitability coach Merra Lee Moffitt, CFP®. She can be reached at, 888-920-2030 or by email at merralee@captureprofits.com.

“Seek new clients, seize better income, capture more profit”

Posted by Merra Lee Moffitt, CFP under Increase Sales Tags: , ,  •  No Comments