“Marilee is distraught,” said my friend. “I gave her your name.”
My friend’s boss, Marilee, published a beautiful printed magazine.
Marilee had not raised her rates, even though all of her costs had gone up.
“She’s losing money,” my friend said. “There’s no place left to cut.”
The three of us met.
“I want to close the magazine,” said Marilee. “I can’t deal with this stress.”
My friend gave me a sideways look. Now I understood.
After we discussed all the options for saving money, I tried to be diplomatic.
“What’s holding you back from raising your rates?” I asked.
Marilee looked tragic.
“I’m afraid my loyal customers will leave me,” she said simply.
Like many business owners I consult with, Marilee not only feared a future rate increase, she had never implemented a rate increase at all.
“Before we do anything drastic,” I said, “Let’s do a little research.”
We started, as one does, by recording the facts of the current situation:
- Number of customers.
- Number of years and months each customer had been onboard.
- Number of customers lost to attrition or other issues each year.
- Number of…
“Wait,” said Marilee.”Back up.”
“I think I have over judged the impact of losing a long time advertiser,” she said slowly. “They have all become dear friends, of course, and I feel as though I have known everyone forever… But now I see that the majority of my customers have been with me less than three years.”
My friend looked at Marilee quizzically.
“My new customers have been drastically underpaying,” she explained. “They have been getting the same benefits as my original customers. That’s not fair at all.”
She thought about it a bit.
“I should have been rewarding my original advertisers and raising rates for everyone else,” she concluded.
“We can do the math and see what would have happened if you had done that,” I said. “Let’s go back three years and pretend we raised the rates five percent each year for all new advertisers.”
I drew a little chart.
- Year 1 annual gross revenue for new advertisers was $760,000.
- Year 2 with a five percent increase would have been $760,000 x 1.05, or $798,000.
- Year 3 increase would have gotten her to $798,000 x 1.05, or $837,900.
If she had raised rates three years ago and every year since then, next year’s projected gross revenue would have been $878,975.
Cumulatively, by next year, she would have made an additional $38,000 + $77,900 + $118,975 = $234,875.
She stared at the numbers.
“Run the numbers for all the advertisers,” she said, “not just the new ones.”
Year 1 = $880,000
Year 2 = $924,000
Year 3 = $970,200
Next year = $1,018,710
“I’d like to hear more about how to raise rates,” she said.
And she did.
Sandy Hubbard is a Marketing Strategist and Consultant who serves the print, publishing and media industries. She helps clients build their businesses using proven techniques and a systematic approach. Sandy hails from a long line of printers, publishers, authors, and newspaper owners. For over two decades, she published a magazine for the printing industry. To this day, her readers — printers and manufacturers of all sizes and types — value Sandy as a trusted friend and confidant.