raising prices caused 80% DROP in business!

Hey everyone, it's Mike Andes. And today I'm going to be reacting to Keith Kalfus, who is a landscaper on YouTube as he talks about what happened when he raised prices and the impact of inflation and the recession that's currently happening in the United States. Regardless of whether or not you know who Keith is, I want to make some points today about how you can position your business in these high inflationary times as we're heading into a recession. How you can make sure that you not only stay in business, but actually thrive and, and grow your company during the next couple of years. Now I'm gonna go ahead and play a couple minutes of Keith's video and you can watch the entire thing on his channel. But I want you to watch these couple minutes and we're gonna break down some of these numbers about his close ratio, about inflation, about what happened when he raised his prices. And let me just be very clear, this is not about trying to bash Keith. I think Keith is a great guy and he did what was right in recovering from losing a lot of customers by increasing his prices. And this is not about making him look bad. This is a matter of someone that honest enough to express and share what's happening. And trust me, it's happening to hundreds and thousands of other landscapers, home improvement professionals and small business owners right now. They're just not making videos about it. So I'm going to use him as an example. But just be very clear, this is not about trying to make it make Keith look bad. I've been interviewed with him. He's a good friend and there's no bad blood between us. I'm just going to use this as an example though of what you can do and what you can learn from it. So let's go ahead and play a couple minutes and then jump into what we can learn from from project based work as we head into a recession.

This inflation is no joke. So this inflation is very serious for our industry, all industries. This is insane. This spring and I put out a video about this too. I did the math and I raised the prices 12.5% for existing landscaping clients and then 20% for all new customers. Right. To compensate for the inflation. And I was like, we're going to be fine. You just raise the prices. Dog. Well, this new price increased resulted in us losing about. And I just posted this on my Instagram at Keith Kelfas. This resulted in us losing about 10% of our existing clientele and lowered our close rate for new clients from 50% because we have about a 52% close rate of qualified leads. I'll explain that in a second. 50% all the way down to a 10% close rate of in person quotes, qualified leads. What mean by that is we took 300 new phone calls qualified 30 of those. Right. So that means that.

Literally 90 out of 100 phone calls, we conversate with them over the phone and we have a script. And if the customer is not a good fit, we figure that out over the phone before driving to their property. And so we'd do like 10 quotes out of every 100 phone calls.

Right.

And then from those we would close about half of those 50%. Well, this brought the close rate all the way down to 10%, which means we did out of 300 phone calls, 30 in person quotes, and only closed three new jobs. Could you imagine taking 300 phone calls and only closing three jobs? You'd be like, that's insane.

I closed 90%.

Well, next thing, these three jobs were priced properly to afford to run a legitimate license and insured tax paying landscaping business that pays the employees and the owner a living wage.

So there are a couple things I want to take away from the video is this. First and foremost, there's recurring work or existing customers that he has. And these existing customers, I would assume he does landscape maintenance. So probably trims the bushes, rakes out the beds, pulls the weeds, etc. Now regardless of if you're doing lawn care and landscaping, what you want to focus on is this type of work. Because realize that when he raised his prices by 12% to these customers, he lost only 10% of his customers. This is a great deal. He probably will double his profits on this work just by increasing his prices by 12%. So it's a great move. Now I want you to realize that recurring work is going to survive better during a recession. Project based work, someone installing a paver patio, someone installing a new hedge, someone installing a new roof. Project based work typically does less well during a recession because it's more discretionary. Whereas maintenance type work and recurring work where for example, he has to go back and trim the bushes, rake out of the beds, pull the weeds, typically does better in recession because not as discretionary as long as you have the right customers. Now there's always many people say, well, you know, in a recession everyone's going to mow their own lawn, or they're going to trim their own bushes or pull their own weeds. But if you have the right customer base, that is affluent and retirees, they're not going to be able to physically do the work and they financially are going to be able to be insulated from a recession. So if you have the right customers and they go into recession, they can't physically be like they're old. They would literally be risking their life to pull out a hedge trimmer. They would be much better off spending the 40 or $50 for you to come do their service when they have millions of dol of net worth, multiple homes, et cetera. So having the right customers is a great way to insulate yourself from a recession. But furthermore, having recurring customers like they're going to protect, they're going to protect their assets, they're going to protect that house, their home that they built all this equity in over the past 10, 15 years of their life. And if they are retired, a large part of their net worth is wrapped up in their real estate in their home. So they're going to want to take care of it. It doesn't mean they're going to want to improve it though, because improvements on real estate in someone's home is usually really, really well in an appreciating market when real estate is going up. And over the past 14 years, since 2008, that's what we've seen. And that's why installation of new projects and new work has done very, very well over the past 14 years. But now, as real estate prices will start to be compressed, that's what's going to have a really adverse effect to projects. And that's why when he raised his prices by 20% to new work, he literally had an 80% reduction in the amount of work that he got. All right, so let's run the math here. He had 300. Now he weeds out 90% of them by qualifying them. He doesn't want to grow a massive business. He has no ambition to do that. I've talked to him and interviewed him before. So he qualifies down to the 30 leads that he actually wants to go after he goes out and does an estimate proposal, talks to the customer, whatever IP, and he only got three of them to accept. Now that used to be 50 over 50%, like 15 or 16 people would have accepted in the past. So literally he is 80% less customers. You could say 80% attrition on project based work, whereas 90% retention on the recurring work when he goes and trims the bushes and recurring work with existing customers. So this is what I want to focus on and that is number one, recurring work is going to do much better during a Recession. Assuming that the customer base that you have is affluent and insulated from the recession as well as they're older and they're going to, there's not an option to do it themselves. They have to hire a service. The second thing to keep in mind is when you're raising prices, you're going to have a stickier service for the existing customers. Now, this is something I just talked about the other day. Watch this whole video here about just how important it is to raise prices on existing customers, not just new customers. Because a lot of people were like, well, I'm just going to raise prices on only my new customers. I'll grandfather my other ones in. And then this is what will happen. What happened to Keith? And that is all of a sudden your close ratio drops down really, really far. And like, oh my word, I can't do that. And you retreat back to lower prices that you can't actually make a profit on because of inflation. But you do that because of their new customers. I would rather raise prices to existing customers. Now, some people think that's a bad thing or that you're somehow. You should grandfather them in because they supported you when you're earlier off and all the rest of it. And I appreciate that. However, you've got to realize that you've added value to the customer experience by having them on for a year, two years, that you've been serving them because they don't have to go and find another provider and have that big question mark of whether or not they can trust this person. That's why when you raise prices in new customers, they're more inclined to go find someone else because they haven't already crossed the bridge of trust with you. If they didn't work with you for a year, two years, and you increase their prices like Keith did by 12%, they don't want to leave because now they've got to go risk making a wrong decision, finding a different provider, different vendor. And that vendor might not show up on time, that vendor might not be professional, that vendor might not communicate very well or efficiently with them. They might, you know, come and do drugs on their property, do something stupid and damage something on their house, like they do not want to make that wrong decision. And the fact that you've had now a, a time pass where you made them happy, you built that relationship, now they trust you. That's a lot of value. And that value is what you can go and raise prices on them and realize that you've already produced value in just having them make A decision and trusting you. And they don't want to go switch services, they don't want to switch and go find another provider and get five more estimates. So there's two big takeaways I want you to take away from this video. Number one, in an inflationary time you must raise prices. But what type of work should you be focusing on? Should be focused on recurring work to be able to get through this recessionary time when people are going to be spending less on project based work that is adding to the value of their home. But when that value starts coming down, people are less inclined to spend money on that again. 14 years that has been the opposite appreciating real estate, everything's been going up and people have been spending money like crazy on projects. So recurring work, great. Number two, if you're going to raise prices, focus on the customers you've had for a long time. I know people that haven't raised prices for 5, 10, 10 years on the recurring customers. And if they did, they'd probably retain like Keith did, 90 plus percent of their customer base by raising the prices and being able to stay up with inflation pay their employees as cost of wages are going up and cost of fuel and equipment and everything else is going up. This is the time when you want to be focused on recurring work and raising prices to your existing customers. Oh, and by the way, if you only do projects and one time big jobs, you don't have any recurring work. You don't build up the relationships and the rapport with customers to have that you can raise prices and then not leave. Because every single job is a new bid, is a new job, is a new customer, is new rapport. I have to build new trust. There is nothing that you can fall back on. And that's where great value and margins comes into play is when a brand starts to build a relationship with the customer. Because guess what, if this iPhone goes up by 100$200 next year, I'm still going to buy it. Because the brand, the affiliation with Apple that I've created, I don't want to go switch to another provider. I don't want to figure out a new operating system. So I'm just going to pay the new price. So instead of trying to sell your customers a new phone every year, like new project. Oh this, this phone flips out. This phone change. No, like just marginally change it improving. You're always making your business better but you keep raising the price because you've already created that brand and that relationship with your customers so focus on recurring work as we head into recession and focus on raising prices to those customers that you've built trust with over time. I'm Mike Andes. Check this video out here. Last week we talked a whole lot about the recession, oil prices and what you can do to stay ahead of it. It was a live call in show with questions from viewers and it'd be really helpful as we head into this recession.