PSU Insight

Setting Your Fees and Prices

How High Can You Go?

So, when it comes to changing your fees and prices, most speakers would prefer to go higher, not lower. But how high?

It’s fine and dandy if raising your fees gets you more business. Even if your business stays steady, you’re making more money. But what happens if you lose sales when you raise your prices or fees? That can’t be a good thing, can it?

This is why your earlier exploration of running the numbers was so important. When you run the numbers, you’ll discover — if your price increase more than offsets your loss in sales, then you’re making more money.

As I cautioned earlier, don’t jump to the “obvious” conclusion. It might seem that, for example, if you double your price and your sales fall by half, then you’re breaking even. But when you run the numbers, you’ll see it isn’t necessarily true!

Your price includes your production cost, so doubling your price doubles your gross income per sale but your net income per sale is increased by much more than 100%. You could easily triple or quadruple your net income per sale. Consequently, you could afford to have sales drop off — possibly dramatically — and still make more money!

(Of course, it's always possible to lose money by raising prices. That's why it's vital that you run the numbers — your numbers!)

So what price do you go for? If there are no other considerations, then you want to choose the price where the net profit per sale, multiplied by the number of sales, is maximized.

By this point, it’s fairly easy to calculate your net profit per sale. (It’s your fee or price, minus your production costs.) You may not know your number of sales for each possible price level, but you can guesstimate. Voila! You’ve developed your “best” price or fee.