PRICING STRATEGY that built my $20M business

Hey, everyone, it's Mike Andes. I'm the founder of Augusta Lawn Care. We have over 90 locations around North America. And today I'm talking about why you should actually lower your prices and get customers in the door. But then how you can actually improve the stickiness of your service or product so that way you can raise the prices later on, improve your margins, make more profits, but do it in a way that gets customers in the door, makes your product sticky so they don't leave when you raise your prices. So let's get into it. So I have a few different businesses. First and foremost, I have Augusta Lawn Care. So we got lawn care, then we got gym, and then I also have real estate. And all of these different businesses. Really, I use what I'm talking about today. And that is when we are going to raise prices to existing customers, but not necessarily raise prices to new customers. And there's really two options to raise prices, the first being that you would raise your prices to new customers. So we raise our prices to new customers. And this one's the most common because it's the least stressful for you as a business owner. Like, hey, if I want to raise prices, I'm just going to raise prices on everyone that I get from now on. What's a little more difficult is to raise prices on your existing customers because, like, man, what if I lose them? I have a relationship with them already. What if I make them mad? What if they leave? What if they return my profit product, all those sort of things. Now the second option, like I said, is going to be raise prices to existing customers. Okay, so these are the two options. And again, this one is less stress because you can just be like, hey, I'm going to change my rates and from now on my price will be different, very different than having to email or contact your customers. And hey, prices are going up. So I've used several different methods in the gym, real estate and lawn care. And I think that I really edited and modified the way I think about price increases, as, hey, maybe I can't necessarily charge more for new customers, but once I have established a relationship, once I have them set up in my CRM, once they have experienced my product and service, if I do a good job with that experience, they don't want to leave. And so now when I raise my prices a year, in two years into the experience of being a customer with my company, maybe they won't leave because I'm good enough for. For them to not go and explore alternatives and go find other competitors. Whether it be a different gym, whether it be a renter trying to find different rentals in the local market, or potentially even for lawn care, like potentially, they could go find another alternative. They could go find a truck in a truck or a different competitor. Plenty of people mowing lawns, but can I get them in the door, lower my prices to do that, get them in kind of on a discount, but then later on, six months, 12 months a year down the road, once they're done their lease, once they're done their year contract at a gym, maybe once after the first growing season for lawn care, can I raise their prices and keep them from leaving and retain 80, 90, 95% of them at a higher rate and thereby get better margins. So a couple things we want to kind of consider when we look at that as a potential model. How do we do that? The number one thing we're going to talk about is you must increase stickiness. Stickiness is basically, how do I make sure that a customer, once they become a customer, does not want to leave? My product or service is sticky. It's like if I step in it, it's sticky. It's hard to get out of it. Now, you can do this in several different ways. Let's go through them. Number one, if you want to increase the whole goal here is increase sticky, okay? That is operation sticky. That's what we're working on here. If we're going to try to do that in your business, first way that we can do that is just improve customer experience. Okay? This could be anywhere from customer service. Could be answering the phone better. It could have a better website, have better uniforms for your crew. This could be for the gym, improving the equipment for, for real estate, could be improving the landscaping. It could be improving the service of the customer. This works for any business. And I think this is a great pricing strategy. And that is get them in the door and then raise prices down the road. But you can only do that. You'll only be able to retain them if you have a sticky product or service. So how do we increase stickiness? Number one, increase the customer experience, make it better. The second thing that we can do, and this one's a little bit controversial, I actually don't like using this one a whole lot. And that is increased the pain of transfer. And there's several ways to do this, right? So if we're looking at increasing the pain of transfer, this could be transferring data, for example, it's very hard to change your CRM because you have all your customer data in there and they make it hard to get it out. That's why software is so sticky. Many times when it comes to CRMs is because we don't want to leave. Like it's a pain in the butt to leave. And if you look at that, think of all of you running your own business like to Switch Quick From QuickBooks to Something Else would be a pain in the butt to switch from your CRM, whatever business you're using to a different one. It'd be a pain in the butt that is pain of transfer. And if you can increase the pain of transfer, you can thereby make your product more sticky because no one wants to leave. So again, a couple ways you could do that. Have a lot of data inside of your service or product. That could be if you're a service based business like lawn care, make sure you have a credit card and file. Make sure you have all the job notes in your CRM. Everything's digitalized. They don't have to send payment or an invoice via the mail or a check. They just pay over their credit card and it's automatically done. There's automations. These are all things that's data that makes your product more sticky. The gym, what do we do to make sure that we have a more sticky product? We make sure that they have a two year or a one year agreement and they can't break it without $199 penalty. And it's a matter of like look, we want you to use the gym. We're going to make this very sticky by making sure you use it. And if you're not here after a couple of months, we're going to give you a call. We're going to make sure you get in this gym and get healthy and that's going to make the product more sticky because a contract is a way to make the pain of transfer harder by having a penalty. Having actual cancellation fee is all we're doing to make the product more sticky is increasing the pain of transfer by having a cancellation fee and pain of transfer. If you can increase that, it'll make your product or service more sticky. This is why I actually like contracts. You have to realize that sometimes some industries contracts are not necessarily the best thing to be doing. And in lawn care landscaping, sometimes it works really well. Especially when you have 12 month agreements and you can mow lawns for year round a little harder. When if I close the gym down for three or four months out of the year, it'd be hard for me to enforce a contract very well, and that's for most people mowing lawns. It's like, well look, I don't mow your lawn for three or four months. Getting payment for those three or four months is sometimes difficult. Not all the time, but in most markets it is. For example, rent, rent, pain of transfer, no one wants to move, no one wants to move their family and have to get a U haul and take an entire week to move it to a different property and find a different property and do a security damage deposit and make sure that parking is right, it's close to the schools for their kids. No one wants to do that. That's pain of transfer. So I can bank on that and raise prices on a renter down the road in order to maximize my profits. If I want to keep them on like, hey, we're going to be putting your lease on and it's going to be an extra $50 per month going forward. And I can do that because like they're like man, $50, hey, we don't want to pay that obviously. But the pain of transfer is a greater than $50 per month and that's what you want to do. That is improving the stickiness. And if I combine the pain of transfer for that, that leasees for that tenant and I also increase the customer experience. I improve the landscaping, clean their house, do a carpet cleaning, I give them some new appliances. When I'm doing that, price increase sticky. And that's all part of keeping a long term customer and be able to raise prices over time and thereby increasing your margins. Now the third way that you can also use is you can create connections emotionally. Now this is usually used for smaller businesses, owner operators. When you're on the property, if you're a home improvement business, if you are the manager, the property manager of real estate company. If you are in the gym, I'm just using these three examples but this works for every single business. So if in the gym I'm talking to members, I'm, I'm on social media, they know who I am, they see me working out there, I have an emotional connection. They have emotional connections with the community inside the gym. And if you can start creating those emotional connections. Now there's something beyond a financial decision that if you raise prices like look, I don't want to move to a different gym, I don't want to move away from my Tennessee, from the property that I'm renting. I don't want to move away from this lawn care provider because I have emotional connections. Maybe in the gym, I Have community. I have other people I know now inside of the gym and other people I work out with and they know my name and they know all about me and they've seen me lose £20. And I have an emotional connection with the tenants. I potentially did some things in their property. They met me, they saw what I'm doing in the community and they saw what we're doing to the property and improve it. And now we create an emotional connection. Maybe got to know their family a little bit. In your lawn care landscaping business, maybe you checked in on them, maybe you said hello, maybe you talked to them for five minutes in their driveway. Now they have a personal connection with you, especially smaller businesses, smaller companies where the owners involve more. You can create these emotional connections that make your product more sticky so you can raise prices later on down the road. Now, what you have to remember when you look at all of this, you have to remember that clients have a fear. They have a fear of making mistakes. Making mistakes when it comes to buying decisions. And this is really what you're banking on when you've created some sort of equity, some sort of relationship with a customer is they do not want to make the mistake of changing gyms and it not working out or the gym not being clean enough. They don't want to switch to another rental property. Like, maybe it's not a good mates loud. Maybe the street's loud. Maybe they have bad neighbors. They like their neighbors now, like, man, I don't want to make a wrong decision. Consumers, when it comes to a buying decision are afraid of making mistakes. And you can bank on that by creating a sticky, sticky, sticky product, a service, something that people don't want to leave. They're afraid of change, they're afraid of making the wrong buying decision. And they're going to want to go towards safety. And if you've done a good job of making a sticky product and service, the safest route is to stay with you. It's not to go try out a new software, try out a new tenancy, try a new gym, try a new lawn care provider. They already are familiar with you and they're familiar with your standards. So that's what I would focus on if I was in your business. Trying to improve your margins is maybe I get people in the door for a lower price, that's fine. I want to actually focus on scale. And I've talked about this before. You want momentum in your business, get lots of customers. I don't care what your prices are. But then make sure your product and service is sticky enough, you have a great customer experience. You make sure you have high pain of transfer. It's hard for them to move. They don't. They're really afraid of this fear of making a mistake. That is part of increasing the pain of transfer. They got to go get new estimates, they got to meet contracts, get other bids. All of that is a pain. That's pain of transfer. And the third thing is create connections emotionally. That's why you want to connect with them, especially if you're small. Bank on that. If you only have a few customers or you're able to make a meaningful connection with the customers within your business, you can absolutely create something outside of just comparing apples to oranges if they start considering alternatives to your business and to your product and service. When you increase prices. So some people get really, really triggered by this because they think that your profit maximization is so horrible. And rent control, and this is capitalism, everyone's costs are going up. No, I've paid so much more in labor and health benefits and all the rest of it. Now we got to keep increasing our prices. And if you want to improve your margins, get enough customers in the door so that when you raise the prices, it actually is meaningful. So that's why, you know, grow your business, grow, get more customers, and then make a really good product and service, deliver really good quality, make it really sticky. And then when you raise your prices, you'll have a 95, 98% retention and have much, much better margin. And when you increase those prices, you'll make two, three times as much profit. So I hope that was helpful. And if it was, check out this video here. I talk about raising your prices and where you can find the perfect spot, how high you should raise your price, and when you should stop raising prices, you start having a capitulation of demand. Check it out right here.