Mike Andes (founder of Augusta Lawn Care) presents a short instructional video arguing that small home-service businesses should raise prices to substantially increase profits. He explains the "value-to-price" equation: customers buy only when perceived value exceeds price, and many businesses fall into a race-to-the-bottom by lowering price instead of increasing perceived value. Andes uses a whiteboard distribution/graph to show that raising price will lose some low-value customers but unlock far more profit from customers whose perceived value remains above the higher price. He gives concrete ways to raise perceived value (answer the phone, wear uniforms, decaled trucks, professional website) and targets businesses under ~$50M in revenue.
Questions this video answers
Mike Andes
Over 150 locations
Over $50 million a year
Small home-service businesses doing under $50 million in annual revenue
Chapters
Hey, everyone, My name is Mike Andes. I'm the founder of Augusta Lawn Care. We have over 150 locations around the world. We make over $50 million a year mowing grass. Today we're going to be talking about how raising your prices will literally double your profits for small businesses that are doing home services. And I say small businesses doing, like, under $50 million in annual revenue. Probably a good idea to raise prices. It'll solve 90% of your problems. And if you're not convinced, let me show you why this actually makes sense from a mathematical standpoint when you raise your prices. But before we do that, we need to understand the value to price equation. If price is greater than the value perceived by the customer, the transaction will not go through. So if over here we have price, how much you have to pay for a certain product or service, and over here we have the value. As long as value higher than price, the transaction will go through. For example, if I believe to me this is worth the value of $20, and then I go to the store and it's only priced at $10, guess what? I'm going to buy it. But if I have a whole bunch of water bottles or I'm not thirsty now, all of a sudden, the value to me is like 2 bucks. I don't really need it. I don't really care. So when I go to the store and it's still the same $10 value or sorry, price, I don't buy it because I only have a value of $2 and the price is $10. Whenever value exceeds price, the transaction takes place. And so for so many small businesses in the service business industry, we focus on making the transaction go through. That is closing more jobs, getting more customers. How do we make that happen? We all just lower price. And that is why we get into this death spiral of downward pressure on prices. Because you can always sell things, and yes, the customer will always accept if you lower price enough. Because if the customer's like, no to $100, what about $90? No. 80? No. All of a sudden, yes, I'll take it at $70. And so there's a price war to the bottom because we can always lower price to get more customers. What's a lot more difficult is to increase the value. Because if the value to the customer is $50 and the price is $60, it's like, well, I'll just lower the price and the transaction will go through. Correct. Or raise the value to the customer to $80 and the transaction will still take place. How do you raise value? Answer your phone, show up in a uniform, Be clean and presentable when you show up at their property. Have your trucks decaled or painted. Have a professional website. These are all things you can do to increase value. Now, with the value to price equation established, let's flip the whiteboard and talk about the value to price equation graph. This is gonna convince you to raise prices. Let's assume right now that the customers see this. This is like a distribution of all your customers, all right? This could be like 100 customers per or 1,000 customers per bar. Doesn't matter. Some people are gonna see absolutely no value in your product and service. None. They're just gonna think you're absolutely worthless. And why in the world would I pay anybody to trim my bushes when I can do it myself? Why would I have anybody clean my gutters when I can get the ladder and do it myself? They're going to have a low value on your service. All of us have to charge a certain price. And so let's just say, for example, right now, this is your price. If I'm charging this is my price, it means that none of these customers are going to accept service from me. This is what we're doing. This is our price, and we're raising it to here. Well, guess what? Just you're going to lose some customers. Because now all of a sudden, these three customers and they have a lower value than the price. So, yes, they will cancel. And that's what we're all afraid of, is losing these three customers. This is what no one takes into account. All right, all of these customers over here, look what happened. This is our old price. This is our new price. All of this is the profit that we could otherwise have by raising our prices. Yes, we will lose a few customers, but look at all the extra profit that we get by raising our prices on customers still have a greater value than what we're charging. Whoa. The most profitable companies don't focus on price. They focus on this side of the value equation, and they drive this number higher. They close more jobs, and they make more money. Check this video out here. You'll love it. Why? Because it's about getting more customers. And the fact that most of us are wasting money on marketing to the wrong people.
