While most small business owners underprice their services, I did enjoy a recent post by Seth Godin about how high you can raise your prices before you start to lose customers.  He describes a situation with his insurance bill:

My car insurance bill has been steadily rising, year after year, despite the fact that I have a clean record. The logic, I’m sure, was, “well, let’s raise it a little and see who quits…”

If revenue increases enough to make up for the few who quit, you come out ahead. So, quarter after quarter, year after year, repeat the same process. Raise it a little, check to see if revenue rises in aggregate, and repeat

There is a point at which you will lose to many customers, and at that point, it is hard to get them back.

One alternative is to reward loyalty. Over the years, I have slowly raised my rates, for new clients.  However, my long term clients, pay significantly less.  They have stayed with me over the years, and allowed my to grow my business, building the skills I now sell at a higher rate.  And when I do have to make a small increase, they are still paying well below the new market rate.

Another alternative is to build value as you raise your price, charge more, but give more and you will earn the right to retain that client.