Those dirty words - Rate Increases

Nothing raises your bottom line faster than a well thought out rate increase.

Note: This blog is probably not for firms that are considered budget or provide poor service.

Web hosting is often considered a commodity business; therefore web host firms are reluctant to raise rates. There are many obvious excuses; "All my customers will revolt and will go away. Our phones will ring off the hook. Our trouble calls and IMs will be swamped."

Worry wart. It will probably not happen to that extent, but you want some of it to occur.

Reasons to increase rates:

Part 1 - The Customer:

• The customers you lose most often are the ones you lose money on. They generally have a much higher trouble ticket/service problem etc. than the regular customer. They cost you money.

• The customers you lose are probably milking your bandwidth.

• The customers you lose probably have a higher percentage of past due bills.

 Part 2 - Your Business:

• Your overhead can actually go down without the bad customers.

• You have more profit, you can cover expenses, afford to add those new servers,  software upgrade, billing platform or increase employee benefits.

• You can even make more money!

• CPI – Your costs do go up and your customers expect it.

• You are due a raise...when did your rent, phone, groceries and gas go down?

• You have too many rates for essentially the same service. Move them to a singular rate, some may even get a decrease.

• Also if in the future you consider selling your company, consistant rates makes the presentation easier.

• Bundling/Enhancements: Add services, enhancements (even perceived enhancements) to the package at the same time.
  • Actual Enhancement:  Tell your customer that their bandwidth limits have been increased 10%, plus...whatever.
  • Perceived enhancements, you can write your customers, "ARKUX9 Hosting customers will now receive an enhanced back end service panel" --- You upgraded Plesk from 8.0 to 8.1

• Timing - I like February, you get confused with everyone else’s increases. Also that is why I am writing this now, you need to plan.

•  You can do a calculation of how many customers you need to lose before you really start losing money (profit not revenues). A must do.

• Consider doing the increase to a selected group of customers. Monitor results and factor in all expenses. Make decisions based on facts.

• Higher end customers are generally more elastic regarding rates.

• It is easier to raise your rates on a regular basis than to do it every few years.

Most important thing in raising your rates: Communicate with your customers and staff.

Remember: Nothing raises your bottom line faster than a well thought our rate increase.

Believe me, I have a lot of experience in this area.

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