Don't Price Like Mickey Mouse

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Here in central Florida the Mouse isn't just a theme park mascot. He's big business. And Mickey made some bone headed business calls this year, as recounted in this Motley Fool article, 5 Reasons Disney World Lost This Summer. Chief among these was raising prices for no good reason. And that's what I want to talk about.

Disney raised the price of single day tickets almost 20% during peak summer season. And they did it at a time when their four Orlando theme parks opened no new attractions. There was speculation that the move was meant to reduce last summer's rampant over crowding. And if that's what they were looking for, IT WORKED.

Things got so bad that Disney lifted all of the blackout days for their cheapest summer pass holders in the hopes that some of that overcrowding would return. It didn't happen and this year Comcast owned competitor Universal Orlando Resort is eating the Mouse’s lunch.

What does this have to do with your consulting practice? There's a tendency to raise prices on one-off tax returns and accounting work to free up capacity for more consulting. And that can have unintended consequences.

More demanding than ever

If you just raise prices a lot of clients you might want to leave will stay, pay the higher price, and become your worst nightmare. Everybody I know that DID buy summer passes to Disney gripes and complains at every opportunity about how they got screwed. They are still going to Disney, but they aren't doing much to encourage their friends and neighbors to go with them.

If you have a client that is an enormous time suck raising the price has the potential to make them an even larger thorn in your side. My experience is that your problem clients usually know they are a pain in the butt, and they secretly appreciate the fact that you put up with them. When you raise their price they will begrudgingly pay it, and they will feel more justified in demanding more of your time and attention.

I think it's better to tell these kinds of clients that you don't have the capacity or desire to keep doing their work. Arrange a soft landing at another firm and preserve the relationship. Your transparency here is important on two fronts. It keeps a poorly executed pricing strategy from back firing. And it bolsters your confidence and resolve to do the work you really want to do.

How deep is too deep

One of the problems with creating capacity through price increases is the inexact science of selling those increases to the customers. Disney clearly raised prices too high. But they didn't know that when they came up with their fancy tiered pricing model. I'm sure the spreadsheet looked great. In the real world it's hard to predict how your pricing increases are going to go over.

And once the new prices are out there you can't backtrack without losing loads of credibility with your customers. This is happening with Disney. When Disney lifted the blackout dates for all those cheap annual pass holders they simultaneously devalued the premier annual pass holders who paid through the nose to go to the parks whenever they wanted.

If you raise prices too high and a few too many clients walk, you will probably freak out. Then you will spend the next two or three years rolling over every time someone pushes back on your price. Your confidence and pricing fortitude will be gone. This is another reason I’m such a big advocate of transparency. As a small business owner you need confidence in yourself to be successful. Having one-on-one conversations with clients where you decide exactly who you will and who you won’t work with is a much healthier way to create capacity and build your self confidence at the same time.

Have something to show for it

I think this is the biggest lesson to learn from Disney. Had one or more of their parks featured a major new attracting they could have (and would have) used the grand opening to justify higher one day and season pass prices. It's likely a lot of people would have still opted out, but probably not as many. And Disney would have enjoyed a whole new tier of customers who weren't considering the parks until those new attractions compelled them to get in on the action.

In your consulting practice you can sell steep price increases if they entail higher value for your customers. Those who opt out are not left out. You didn’t give them a take or leave it price decision. Instead you let them weigh their options and decide whether they want the increased value enough to pay for it. If they don't want it, it is their decision that causes them to move on, not your blanket policy forcing them out the door.

You can increase the price of a tax return 50% if it includes planning throughout the year. You can increase payroll prep by 25% if it includes help with onboarding new employees and not just delivering their first paycheck. We doubled and tripled prices one year and told clients they would now be getting a custom suite of services designed specifically around their goals for the year. When you do these things not everyone will sign on, and that's good because it creates the capacity you are looking for. More important, you will find some clients that open up and take advantage of your expanded services, in spite of everything you ever thought about what they wanted or what they might be willing to spend.

Price increases aren’t bad, but as a strategy in and of themselves they can do more harm than good.