This is a question that one of my WIZE Mentoring members asked me via email recently.

I have been ignoring a key issue in my firm for some time, and I’ve realized that now I really need to bite the bullet and stare it in the face. When I first started my firm, I wasn't sure how to price my services. I played a guessing game when drafting proposals (something along the lines of "pick a number from the hat, close my eyes and push send") and I also wasn't keeping timesheets.

Fast-forward to today, and I’m providing these clients with exceptional service (monthly meetings and everything) for a very low cost. I am also keeping timesheets, so I can see that we are undercharging these clients a lot.

How do I have a conversation with my clients and tell them that we need to raise their fees by around $400 per month? Am I better off taking the loss for these clients and accept they are good referrers? Or, do I increase by smaller amounts each year until there is finally no loss?

It’s a great question. There is a financial matrix that shows that if you are on a gross profit margin of 30%, you can increase your prices by 10% and afford to lose 10% of your clients without losing any money. Namely, you will still make the same net profit.

You can work the numbers out for yourself quite easily:

1. Work out your average fee per client

2. Increase all these fees by 10%

3. Cut out 10% of your clients and see what the net profit will come to

For example:

1. 300 clients at $1,000 each will total $300,000 in fees, with a 30% gross profit margin of $90,000

2. Increase these fees by 10%

3. 10% lost clients would mean 30 clients

Now, you would have 270 clients left who are each paying an extra $100 ($27,000 in total). Losing 10% of clients means 30 client’s at $1,000 each, or $30,000 in total. It’s pretty close if you take into account fixed expenses.

But you won’t lose 10% clients, you will only lose a handful of clients. The purpose of this exercise is to highlight that even if you lose a decent chunk of your clients, you won’t lose in the overall picture from