Mike Andes argues home-service businesses can raise prices far more than they think. He recommends increasing prices 10% at a time until your close rate drops 20%, a sweet spot he says unlocks profit for 60 to 80% of owners. The key: reframe value for who you're selling to, not just what you're selling.
Questions this episode answers
March 29, 2024.
Raise prices by 10% repeatedly until you see a 20% reduction in your close ratio.
About 60–80% of home-service business owners.
As an S-curve: close rate stays relatively stable over a mid-range of prices, then drops more steeply beyond a threshold.
Charge $0 → ~100% close rate; charge an extremely high price (e.g., exorbitant) → ~0% close rate.
Hey, everyone, it's Mike Andes. And today we're going to be talking about why in your home service business you can raise prices more than you think without losing very many customers. And I truly believe this is a huge unlock for 60 to 80% of Home Service business owners. And that is, if you raised your prices, you'd solve most of your problems. You can't have. How does that have to do with me? Cannot be able to find any good, you know, employees. If you're able to afford four or five dollars more per hour, I bet you'd be able to find some good employees. How do we get four to five dollars more per hour for our employees? Make more money. How do we make more money? Raise prices is so often the times. I'd say literally 80% of home service business owners just need to raise prices and the problems that they're facing would be solved. Now to prove and to hopefully convince you that raising prices will do less damage for your business than you think, let me show this graph here. Knowing this is important, if you were to have on you can see here on the x axis, we have our price. Okay, we have $0. Then we have like middle of the price right here. And then we have super expensive. Now, as we raise price, our close ratio is going to go down. So for example, if I am going to charge $3,000 per hour, that would mean I'm going to go really expensive. I'm probably going to be where I have a very low close ratio. So on my y axis, my close ratio is going to be super low. All things held consistent. If I just keep raising prices to infinity, I'll eventually close 0 of my jobs because no one will see the value. I'm charging an abhorrent amount of money. I'm not going to be able to close any jobs. However, let's look and see what happens if we charge zero. If you were to charge zero and we were over all the way over here, I'm going to fill this guy in right there. 0 and we charge nothing. Everything was free for our customers. Theoretically, assuming everyone actually got the quote and they didn't, were a little bit shady, you were giving them something for free. Assuming that was true, you would close 100% of your jobs. I think most people can agree that if you charge zero, you'd close all your jobs. If you charge a million dollars an hour, you would close zero percent. So that's what this graph represents. Now, this is what I find so often at times we're always very, very price sensitive. In our brains because we as business owners would do the work ourselves. We don't see the value of our service to a different target audience. Your target audience. If they're 60, 70, 80 years old, them trying to get on a ladder or do the home service themselves is potentially putting their life in danger. It's also taking away time from them. And if they're that old, they might only have several more years to live. Trust me, the time, their value on time is so much greater than you. And that's why it's sometimes hard for us as business owners, if we're in our 30s or 40s, to like, man, they're going to pay $1,000 for something I'm going to get done in half a day? That's insane. Well, to them, they might not have a whole lot of days left. And so the ability to be able to go spend that time with their family or, or spend that time on the golf course is exponentially higher value to them than you if you're younger. So that's why sometimes you have to reset the value framework and then you're able to sell yourself. On the fact that I'm not really selling, you know, trimming this bush or painting this wall, I'm actually selling something that to them is extremely valuable, which is time, which is security, which is safety if they have don't have to get on a ladder and things like that. So putting those things aside, where I see most home service business owners is their pricing is somewhere like right here, and that is they're charging a decent amount. They're kind of middle of the pack in terms of pricing, and their close ratio is around somewhere between 40 and 70%. Right. Very common. Now this is the thing that is insane. If I raise my price. So right now we are charging approximately, you know, about what, 20% of the way through our X axis. If I raise my prices and I go all the way to here, I raised my prices significantly, but look what happened. My close ratio only dropped a little bit. And this is why I feel like most home service business owners are shocked when they raise prices and not as many people leave and not as many. Their close ratio stays relatively the same. The reason for that is because most of us in our head think that this is the trajectory of price to close ratio and that is this blue line right here. We think that if we raise price that we are going to have less people accept the job. And that's true. Some people are going to leave if you raise existing prices on customers, etc. However, we think it's that linear line which means the more I increase price, the less I get close less percentage of my estimates I am able to get accepted. That is true. However, it's not linear. It follows this S curve. And on that S curve what that means is, is you're able to raise prices between some range and it not affect customers as much as you think it's not linear. And this is why some people will be like, well, I tried to raise prices and then all of a sudden all my customers left. Okay, what happened there? If that's the case, it probably means that you were somewhere right here on pricing and then when you raised your prices down over to here, you saw a big drop in the amount of estimates being accepted. And so what I challenge people to do is raise your prices by 10%. So keep raising your prices by 10% until you see a 20% reduction in the close ratio. Because once you see a 20 reduction, that, that's when you're starting to get further on the right hand side. More like right here. And this is a beautiful place to be in your home service because this is what I call profit maximization. All right? That is where I have raised my prices to the point where if I kept raising them, I would actually see a meaningful difference in my close ratio. But the vast majority, the vast majority, I'd say 70 to 80% of Home Service providers, because we haven't convinced ourselves of the value that we provide to customers. Because of that, we spend most of our time somewhere over here. And we're happy that we get 70, 80% of our estimates closed. Yeah, you're going to get that. But if you raise your prices by 20, 30, 40%, I bet you'd end up over here, you'd maybe reduce your close ratio by 20%. But if you increase your prices by 40% and reduce your close ratio by 20%, you are massively more profitable. And so keep this chart in mind when you're raising your prices and ask yourselves, if you have not raised your price of the past three years, ask yourself, what am I leaving on the table in terms of profit? Because this delta right here, this, all this extra is the app, the profit that you could have in the business. This is lost opportunity and money that you're leaving on the table. And if you raised your prices by what you think is a lot and you're going to lose all these customers, you haven't raised prices in years. And if you're going to tiptoe into it, raise your prices slowly, until you start to actually see resistance and people not accepting your jobs. I think for the vast majority of home service businesses, they raised their price. They would realize they're actually over on this side of the continuum and raising their prices would hardly affect their close ratio. I'm Mike Andes, Copilot, CRM.com and Augusta Lawn Care Services Take care.
