A few years ago, my wife and I were fortunate enough to do a walking food tour while on vacation in Paris. I know, that’s a very bougie thing to start a post with. Try not to hold it against me.
A big reason we wanted to do this tour was to get a better sense of the history of food for the region. How it was grown or raised, what went in to making it into a meal, and how that reflected the culture of French food. Maybe it was from watching so many Anthony Bourdain tv shows, but we’d been very curious in developing an understanding of the history of what we eat, and how each culture put their own spin on things. In the sports science realms, we usually don’t care as much about the culture of the food and more about the macronutrients, bioenergetics, and effects on things like performance and body composition.
It could be said that understanding a foods culture and development is understanding it’s past, whereas the science of nutrition is understanding it’s future in use and storage.
While walking along cobblestones, sampling baguettes and different cheeses, and learning about the intricate history of french cuisine, we chatted with other members of the small group. We were the lone Canadians, with some people from various US states, and a handful of English vacationers in the mix. At one point, we sat with a younger couple from Minnesota who both worked for a very large worldwide cosmetics company, he as an organic chemist and she as an accounts manager.
It was fascinating to hear them talk about the development of products and how they put them to market. One product he was most involved with, face creams, had a massive difference in pricing and marketing all while being relatively the same. Their most expensive line sold for about $400 an ounce, whereas the lower cost line was closer to 20 bucks for a 10 ounce bottle.
They were essentially identical in terms of their active ingredients. The only real differences were in the thickening agents used, and some perfumes. They put the fancy stuff in slick glass containers, put them in department stores and sold them to rubes at a 17,000% markup. There wasn’t anything particularly special about the products to justify the price, they were just able to be sold for a lot of money. He said he had a couple 5 gallon jugs of their left over top of the line cream in his backyard with nothing to use them for, but said it was one of the best bike chain lubricants he’d ever used.
I had a bit of a chuckle at a guy using $400 bike chain lube from a Home Depot pail in his back shed that other people were dropping mad duckets on to smear on their faces.
The whole point of this rambling story was to show how much value we can attach to something and how much we can be convinced that it’s worth. You can spend $400 on the expensive cream, or spend 1/100th of that amount on essentially the same thing with a bit of different packaging. You could drop a few thousand dollars on a namebrand designer handbag, or get one of the reusable ones from the grocery store to do the same thing, but without any of the social cues.
Why would someone buy a million dollar house when they would only use half of that space? Why would someone spend $200k on a car, when one that retails for $40k would do everything they would need to? I could buy a sick pair of Jordans for $2000 from a resale site, even though those same shoes retailed for $200, and up until a few months ago those same shoes were on the same resale site for only $400. Same goes for wagyu beef, expensive scotch, high end experiences, business class airfare, and expensive hotels. Humans are a curious breed who will get as just as drunk, arrive at the same time, and sleep just the same for 10 times the same cost as the other people doing the exact same thing they are if left to their own devices.
Why? Perceived value and status.
A growing segment of the population is willing to spend money on “good” products, services and experiences. I say good with quotation marks because good is a subjective term based on their perceived value relative to the amount spent. Some of this is looking to get the highest quality possible, and some of it is for the bragging rights to show off. We all have something we’ve splurged on, and I’m no different or passing judgement on what you value and what gets your excited.
I know of one trainer who prides himself on being the highest cost personal trainer in his area, and will raise his rates if someone else charges the same or more than he does. There are people who will buy the most expensive of anything simply because it’s the most expensive.
This goes outside of the idea of supply and demand, whereas pricing is more structured towards availability than desire. Look at rental cars with the return to travel to see supply and demand in action. Perceived value and status only really follows supply and demand relative to scarcity. If there’s only one of something in the world, there will be a bigger market for it than if there are 10 of them, because of the relative rareness of that object. These rare items become coveted simply because of their rareness.
Most items of perceived value don’t directly follow supply and demand elements. Diamonds are a great example. Diamonds keep getting mined and produced for consumption, but very few ever leave circulation except when used up in industrial settings. The increased production and availability of diamonds hasn’t reduced their pricing, and in fact their per carat pricing has grown massively in the past few decades, in spite of the increased supply available on the market. I could find diamonds at a dozen stores in any mall in any city in the world. People just want the bling.
This is all good info to know, but what does this mean to you? Well, if you’re a professional who charges for your services (and don’t have regulatory boards or government codes dictating your rates), it could be fair to say your services would also fall into the perceived value many people would be willing to pay a premium to access. The fitness industry falls into a specific niche of this idea, whereas access and affordability are often at odds against highly specific and customized services.
We want to help everyone and be affordable, while simultaneously being the best at what we do and offering tailored precision. We often fail at both.
On top of that, each type of business has its own business expenses, ranging from leases payments and equipment costs to software, employees, continuing education, consumables, and many others. Current inflationary pressures mean many of these operational expenses are costing more, plus if any regions required businesses to be shuttered due to government restrictions, costs are high without the income.
All of these are good enough reasons to increase your pricing. Another consideration is the new relative scarcity of personalized fitness services available. Unfortunately, a large number of commercial facilities, studios, and independent operators were unable to weather the storm of the pandemic, meaning a smaller pool of service providers to access for the same number of people. Relative scarcity of quality service providers means perceived value increases.
Another potential area for pricing increases is through specialized skills. If you can do something or help someone in a way very few others can, your perceived value increases further. If you’ve expanded your skillset into any area that your clients/patients/customers can benefit from above what would be offered at the market average, your value is higher in the eyes of those looking to access your services.
As a short summary, you should probably look to increase your rates for your services if:
That last one is a fun one to dig into a bit more. If you’re pricing your services at a relatively fair amount for the value you’re providing, with a normal distribution curve you would expect to see about 20-30% of people grumble about the expense or outright refuse to participate because they view it as too expensive.
If you’re not seeing 20-30% of people say you’re services are too expensive, you’re able to increase your rates without much pushback. A 10% increase or less is usually something most people won’t even raise an eyebrow over.
If you do raise your prices by 10% and still don’t have 20-30% of potential customers saying you’re too expensive, raise it another 10%.
Now the obvious objection to many who are looking to avoid raising their rates is that they don’t want to lose their existing clients. This is a fair concern, but in practice, most clients won’t cut and run over a 10% rate increase. At worst, they may reduce the frequency that they access your services. But that being said, if your business fixed costs are consistent, and you go from charging $80 per service for 140 hours a month to $90 per service, you can wind up making the same income in 124 hours a month. So even if you hypothetically did lose 10% of your services or clients, you’d likely still be financially better off at the new rate compared to the old rate.
Also, if you’re working more than 10 hour days (not just available 10+ hours, but working for 10+ hours), you should increase your pricing to regain some of your time.
When preparing to raise your rates, the best course of action is to just be direct and blunt. It’s not an emotional thing, it’s just business. Give your existing customers time to prepare, but just say you’re raising rates on this date upcoming. They’re all adults and can make decisions based on what works best for them, and if they have concerns or need to make adjustments, they’ll let you know. Most of the time, they won’t and you’ll be able to just adjust pricing going forward without much issue.
If you’re not a service provider or business owner and are instead an employee, getting a raise should also be in your mindset. If you want a great outline on how to get this, check out this post by Ramit Sethi, author of I Will Teach You To Be Rich.
There’s absolutely no reason to not increase your rates if you’ve spent time developing your skillset or business, or have to recover from pandemic related hardships. Everything else in the world will cost more, and there’s no reason you should make less money relative to any previous year than you are now.