Easing out of Recession not so Easy for Small Service Companies

Very recently, several of my clients have begun sharing that their sales have turned up over the last couple months. Yeah, finally! Since I talk to business owners every day, and no one has expressed that sales are getting worse, this constitutes a trend, albeit an unscientific one. But, hey, any good news brings a sigh of relief at this point.

With sales up and seeing your business operate in the black, at least on paper, you might think your troubles would be over soon. Not to burst your bubble, but don’t forget about a brand new kind of cash flow squeeze. How could such a squeeze be new when you’ve already been dealing with cash deficit issues for well over a year?

During the recession, clients who pay an invoice began paying slower. Now with your sales going up, your expenses are probably going up too. So while your sales and billings might increase, the number of days to get paid has gotten longer. This is causing the new kind of cash squeeze. One where expenses go up because but the cash to pay for those sales doesn’t come in until 30 to 45 days later. Before the recession took hold your invoices might have been paid in 15 to 30 days. Now, you are carrying additional cost with slower pay and may already have drawn upon your credit line too much for comfort. This leaves you squeezed in a new and more uncomfortable ways even as your sales look more promising.

So, how do you compensate?

1) Your cost cutting days may not be over, even with light on the horizon and sales increasing.

2) Yes, delaying your own payments may still be necessary.

3) Invoice more often, for partial payments at start of contract and at delivery points.

4) Drawing on your credit line may be required even if you were lucky enough to have avoided it so far.

5) Get creative, or call me and we’ll get creative together.

And lastly, don’t forget to count your blessings. Slashing of prices just to stay competitive may soon be over. Wondering when it will end is a thing of the past. You survived the Great Recession of 2008-2009. And while you may never return to the glory days of 2004-2005-2006, you are now better prepared. Remember, good habits get formed in bad times, but we get to keep those good habits forever.

Now stop reading about recovering from the recession 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.

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”

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