The Compound Benefit of Raising Your Rates

“Marilee is distraught,” said my friend, “So I gave her your name.”

My friend’s boss, Marilee, published a highly-targeted magazine, printed and mailed to a paid subscriber base. She wanted to talk to me not about her readers but about her advertisers. 

Marilee had not raised her advertising rates — ever — although all her costs had gone up. 

“She’s losing money,” my friend said. “There’s no place left to cut. I said she should raise rates, and she won’t hear of it”

The three of us met. 

“I just want to close the magazine,” moaned 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 preferred to operate at a loss than raise rates and lose customers. She feared a future that she could control with the right planning and communication. 

“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 advertisers.
  • Number of years and months each one 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 ONLY my original advertisers all along and raising rates for everyone new who came in,” she concluded. 

“We can do the math and see what would have happened if you had done that,” I said. I started to do the calculations. “I’ll go back three years and pretend we raised the rates five percent each year for all new advertisers.”

I drew a little chart for her.

  • 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.

The compound math was startling. There had been hundreds of thousands of dollars left on the table by not implementing an annual rate increase.

Marilee 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. 

Read more from Sandy here. 

Sandy Hubbard is a Marketing Strategist and Consultant who specializes in print, publishing, and media businesses. She helps clients build business value using proven techniques and a systematic approach.


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