The Only Times You Should Ever Lower Your Prices

In this video, I'll show you eight specific reasons why lowering your prices actually makes you more money. I've traveled the country and turned around more than 100 home service businesses. Some of them made higher profit from lowering their price instead of increasing their price. We'll walk through the eight situations where lowering your price increases total profit, cash flow and and control. And you might be like, but Mike, you always say to raise prices and not compete on price. You're correct. That advice gets you to a profitable $1 million business. 95% of people should listen to that information. This video is pricing 2.0. What works after Survival Mode. So I was recently on a coaching call with Zach from a company called Downspout. And they did over a million dollars in annual revenue, very profitably doing exterior cleaning. And one of the things that they do is sell a very premium service out in New England to homeowners and like 14, 1500 dollars per service for exterior wash, like soft wash. So they just come out and spray the house down, clean it, et cetera. Now that service usually is needed every three to five years, but he's able to get some people to commit to an annual package. So he's like, is it better that I actually just get them on a monthly subscription for say 99 bucks a month? And the challenging part was like, well, technically I'm lowering my price because if I get them on an annual signup of like 14 or 1500 dollars, why I charge them 99 bucks a month, which is 1200 dollars per year, when I could technically be making 14 or 1500 dollars, he's like, that's all my margin. That extra two or $300 per service is where all my profits are. And so in that coaching call, I walked over these eight different tactics and really reasons why you would actually want to lower your price. And you'll find out which of these eight I used with Zach from Downspout, so he'd go from a million dollars to $3 million in annual revenue. So the first reason why lowering your price actually is strategically making sense is when you can increase the frequency of your visits and the lifetime value of the customer. And so for Zach, and instead of going once per year, like the whole objective was like, I want to go once per year instead of every three or four years. When he was selling this one time service for a soft wash of someone's house, there was no guarantee that they were going to come back next year. And only a fraction of his customers would actually contact him in 12 months for the Next service. And so as much as I'm like, yes, we're going from 14, 1500 dollars per service to $1,200 in theory, if I can get 80 to 90% of people to sign up for that second service, I'm immediately increasing the lifetime value of that customer by twelve hundred dollars instead of them being stuck at fifteen. So maybe they come for one service, they pay me fifteen hundred dollars. But if I can get them commit to the next 12 months, I.e $2700 is now their lifetime value. That's a huge win. And so increasing the lifetime value, I was able to lower the price, give them a discount by locking this on this monthly subscription. But more importantly, I was able to lock them in on actually getting the service done once a year. Because usually a lot of recurring services that you're going to do don't require as frequent as you would like to sell. And he wanted to sell this as an annual cleaning. And if he does the cleaning every year, there's way less work. There's not as much mildew or buildup and dirt and decay on the siding of the house, the roof, the gutters, et cetera. And so if he can get them to come in using this $99 per month subscription package, he's able to increase the amount of visits because he can actually make sure the customer is showing up on an annual basis instead of once every three or four years once they can actually see the dirt accumulation on the house. All right. The second reason why you would want to lower your prices is so that you can control your schedule. And one of the things about having someone on a recurring package like I talked about, Zach, is if they're on that monthly subscription of 99 bucks a yes, I'm making less per service, but I'm able to control when the job is on the schedule. And I what I told Zach is like, hey, if someone has a now an annual house cleaning, I'm going to put that outside of the spring rush. So if you're really busy from March till June, I'm not going to put those people that sign up for that cheaper package inside of that very busy season. I know that leads are pouring in during that spring rush, and I'm going to schedule those people that are on that cheaper, lower price tier outside of my spring rush. And so this is another thing that you can use in your business, regardless if you even have subscriptions, is I will lower price if I'm allowed to control the scheduling. If you allow me to book your one time project in four months from now during the middle of my off season, I'm okay with taking a lower price. So when it comes to lowering price, one of the times I'll do it is if I get the flexibility to move the job into my off season. Whether it is like with Zack, where I actually put them on a monthly subscription, or if it's just one time projects like, hey, if you're price sensitive and you declined my estimate, I will contact you back and say, hey, if we take off 10%, we can do that and fit within your budget. But you've got to schedule four months from now during our off season. And so if I can control the scheduling and move it out of my busy season, I'll lower my price. Number three, when you can stabilize your cash flow, I'm also willing to lower price. This is another one that really impacted Zach is he had a huge influx of revenue during the spring rush, but during the off season he barely broke even. And so my objective was, hey, can we take higher lows and lower highs in your cash flow? Meaning taking those 1500 dollars one time projects and instead of having them, all of them being smashed into four to six months, let's even that out with that monthly subscription so I can stabilize my cash flow. And I'm willing to lower my price if I can do that. So instead of having that $1,500 one time job in the middle of his spring rush, he's going to get 12 even payments of $99 throughout the entire year. So I'm happy taking the $1200 instead of $1500 because it stabilizes my cash flow. And the reason this is so important is because you have stable cash flow, I don't have to have huge cash reserves to get into my off season. If you don't lose money for any month of the year, I don't need to set aside 50, $100,000 going into my off season because I'm not going to bleed cash. So by having that more stable cash flow and having that monthly subscription, I'm okay with offering a lower price to the customer. The fourth reason why lowering your prices could actually be a good strategy is when you have a loss leader, a service that you offer that you might break even on, but you have a really good system for upselling higher margin services. So for example, when it comes to landscaping, mowing for us, just mowing itself, we don't make a ton of money the actual mowing of the lawn. But if I'm edging If I'm blowing off the walkways, if I'm able to get that same customer to convert into winter services, if I'm able to get them on a leaf cleanup and a molten stall and a spring cleanup and a leaf cleanup and snow services, if I can get them on all this other stuff, lawn treatments, that's where I make a lot more money. And I am able to turn what would have been an $800, $1,000 customer for the year, I'm able to turn that 2, 3 or $4,000 in annual customer value. And so if you have a good upsell system, I'm okay with having a loss leader or an entry level gateway service to get people in the door. The problem is when I talk about loss leader, somehow people just think like, oh, that means I can just lose money on everything. No, I need a strategy and to be able to get them in the door and then upsell them multiple times. And so if you're not sending out texts, if you're not sending out emails, using homeworks to get them to upsell every single month, then the loss leader becomes a loss profit business like in the red. I don't want that. I will only discount my price if it's getting them in the door. And I know I have a system in place to get more high margin services sold to them consistently. Number five when you're below capacity is another reason why I would also lower my prices. Because if you have a bunch of trucks and equipment and employees that are sitting idle, I'm way below capacity. In other words, if you have the trucks, equipment and the employees to be able to produce $200,000 in monthly revenue, and you're only producing $80,000 in monthly revenue, and most of the days your trucks are sitting idle, you your equipment sitting in the shop, and you have employees literally twiddling their thumbs working 20 or 25 hours a week, that is one time I would also give you the green light to be able to go lower prices. Because those fixed costs of trucks that are sitting there, you're already paying insurance, you're already paying for their payment, you're paying for the storage and the facility of your shop space, you're already paying for those fixed costs, so you might as well get them deployed and out doing work out in the field. And if that means lowering price so I can increase my close rate, I'm okay with that. But I don't want my trucks, I don't want my equipment, I don't want my employees sitting around twilling Their thumbs. And I would rather them have go out in the field, get work, even if it's for those entry level services, gateway services, those loss leaders and get reviews, get upsells, go do door hangers at the customers around the property that they're serving. These are opportunities to generate more work. But your trucks and equipment sitting in your shop aren't doing anyone any good. Number six, the sixth way to lower prices strategically is when you want to reduce your customer acquisition cost. By lowering my price, I know I can increase my close rate. And when you increase your close rate, you're going to reduce your customer acquisition cost. Now the reason that having a lower customer acquisition cost is so important is especially if you're going into a new market. So if you're starting a new location and if you are going in a new service area, I'm okay with lowering the price because I assume that I have a very sticky service and there's low churn and that down the road I can raise prices and no one will leave. And so a lot of times I actually talk about raising prices and once someone does it one time and they realize like, oh, I do a great service. And when I raised prices by 15, 20%, only a couple percent of customers left and I only had one or two complaints and it wasn't that bad of a deal, a deal, it was okay, like I survived. Once they realized that, they realized, okay, if I go into a new market, instead of spending three or four or five years slowly building up the customer base, what I'll do is I'll go into the market, I'll have lower prices and I'll get a very high close rate and therefore do what I would have taken four or five years in one or two years. And then down the road I can raise prices, but I want to get to capacity as fast as possible. I want to fill my trucks, fill up my equipment as fast as possible where there's being used all the time, and then I will raise prices. I want to get to capacity quickly and have a lower customer acquisition cost and have a higher close rate. So going into a new market, reducing your customer acquisition costs so that your initial budget that you have goes a lot longer, goes a lot further. Because if your customer action cost is $50, in other words, I have to spend $50 to get one new customer, awesome. I can go out and get 100 customers for $5,000. However, if my customer acquisition cost is $150, because I have a low close rate, I have high prices, I'm not allowing anyone to do service to me unless I'm super profitable. If I go and use that mentality in a new market where no one's seen my trucks, no one's seen my, my advertising, my branding, I don't have any referrals coming from the area in that new market. If I'm $150 customer acquisition cost, that same $5,000 budget just became $15,000 budget to get that initial hundred customers. And so if you want momentum, if you want cheap customers, I will lower the price. I will prove myself over the course of 6, 12, 18 months that I have a really quality service and then I'll raise prices once I know that I'm at capacity and that my service quality is so good that no one's going to leave. Number seven. Another reason to lower prices is when you want to increase online conversion. And so I am willing to lower the price on my service on online conversion with instant quotes. The reason for that is because that instant quote doesn't cost me anything to actually go out and give the estimate. If I have to go visit the customer in person, if I have to have someone answer the phone and spend time with every single potential lead and only a percentage of them actually accept the job, I am, there's actual real cost that there's real cost. Not just like the 10 minutes on the phone, not just the hour of the estimator going and visiting the property. It's all the other time that that person in the office or the estimator don't go do anything productive. But I need to staff them in order to be able to do in person estimates and over the phone estimates. Because your agent on the phone is not on the phone 100% of the time, they might be on the phone for 30, 40, 50% of their day. And so that 10 minutes is actually costing you 30 minutes of admin time. And so because of that, I am willing online in the instant quote form to reduce the price. Also, when it comes to instant quotes, if someone just doesn't like the price, they just leave. So I want to catch as many people inside of that net as possible. I don't want them seeing a high price because I'm greedy and like I'm only accepting high prices. I'm, I'm not going to reduce it. Good, great. You're not going to get that customer and you're not going to sell them the other thousands of dollars worth of services that they would otherwise have bought from you. If you would have got them on that Initial service. And that's why using those low barrier entry, entry level gateway services on instant quotes is so valuable. I'm going to reduce the price, get them in the door, I'm going to sell them a whole bunch of other stuff and down the road I will raise their prices once I'm at capacity and once I've proven to them that my service is valuable. And so another reason why I would lower prices is to get my online conversion as high as possible because it costs me nothing for them to submit the estimate request form. I want as many of those to turn into paying customers using instant quotes. And so I will lower the price entry level. I'll show them like we literally on our instant quotes will cross out the original price and show them the lower price and increasing our conversion, getting them in the door to upsell them more services and be able to raise their prices down the road. Number eight. Another reason why I would lower prices is when you want to fill your route density and the gaps that are on your current route and you want to reduce drive time or windshield time because no one's making money when your crew is driving around on pay for performance, they're not making money and you're definitely not earning any revenue for the business from the business owner's perspective. So reducing the drive time between jobs on a route, very important. Meaning I might be willing to take a lower price and not make as much profit on one job. But if I get three jobs in the middle of two jobs that otherwise were 30 minutes drive and now I can break that with three new jobs that are lower priced, but now my drive time on average between those visits is five or six minutes. That's a win because now I can actually make sense of making money. My team makes better money on P4P. And so even though my per hour rate that is on the job is lower, I'm able to dramatically reduce the percentage of someone's day that is just spent driving. And so this usually correlates with going into new service area or new market where you don't have great route density. I want to penetrate the market, get great route density so that when I raise prices, my employees can make great money on P4P. I don't spend a lot of time driving around. This is the reason why when I buy trucks, we usually put five to 6,000 miles on a truck per year. We're not driving it very far, we're within a five mile radius and we use that thing every single day. But I shouldn't be driving 20 miles this direction, 20 miles this direction, 15 miles over here, 10 minutes between this job, 30 minutes drive getting caught in traffic, I don't want that. And so I'm willing to take a lower price to, to fill the schedule with a route that is very tight. I ideally want to be having my routes being with like a mile or two, like not a lot of miles should be driven on your trucks if you're doing recurring services. So those are the eight reasons why you'd raise prices. But I want to put a massive warning and that is lower prices will always make certain KPIs key performance indicators look good. Customers overall will be more satisfied. If you just like went today, like everyone that's 50% off, would that make them happier? Yeah, sure. In the short term they would be happier. Your close rate will go up, you will close more jobs, customers will accept your estimates more often. If you lower prices, your customer acquisition cost will also go down. Because when you increase your close rate and you spend money and on ads and your prices are lower, people accept. And so your customer acquisition cost also is lower. So you've got to be very careful with low prices. So although these eight things that I just talked about are good reasons as to why you would lower prices, you'll hardly hear me talk about it. Because people get addicted to lower prices. They get addicted to lower customer acquisition costs, they get addicted to great customer satisfaction, they get addicted to great close rates and therefore never raise their prices. The whole objective of temporarily lowering your prices in all eight of these instances is to eventually show your worth, upsell the customer, and raise prices down the road. So be very careful. This is like a drug. You got to be careful in small doses. Aspirin is good, but you can't take the whole bottle. And so many people take the whole bottle of lower prices, lower prices. They're so proud of their customer cost being 20 or $30 and their close rate being 90, 95%. I don't care. I want to see profit in the business bank account. And until that happens, I'm not giving the past long term for you to lower prices. But in the short term, these are the eight reasons why lower prices will allow you to get more customers, sell them more stuff and make more money.