The Ultimate Guide to Raising Prices (without losing your mind)

Hey, everyone, it's Mike Andes, founder of Augusta Lawn care with over 200 locations around the world. And today we're talking about how you can raise your prices without losing your mind. And if you're thinking that, you know this is money hungry and you're all greedy trying to raise prices, this podcast is not for you. This is for business owners that do over a million dollars in revenue, realize the worth of what they do in the home service industry, and are trying to make a profit so they can give back to their community, to. To their team, and build a future for their family. So without any further delay, we got five different questions on the docket. Questions from you all. If you have a question, you can go to mikeandys.comquestion, submit a quick video, and I'll answer on the next show. First up, Mike, every time I even think about raising prices, I get scared I'll lose half my customers. How do I know it's actually time to pull the trigger? First off, you can overcome this fear by just simply doing the math. And if that still doesn't help, you can then test it out. So if you have 500 customers like I'm lose 250 of them, okay, let's go ahead and raise prices on 50 or 10% of them and see how many of them actually leave. If out of the 50, one person leaves or 2%, there's a good chance if you raise prices on the other 450, you'll probably lose 18 or so customers. Cause the math starts to play out. And so first off, I'm going to look at capacity. I'm going to actually convince myself of the math. If that doesn't work, go ahead and test it. And so we'll talk more about, like, the math of what proves that you need to raise prices. But ultimately test things out to convince yourself and realize that one out of 10 customers are going to freak out, and then one out of three of those will leave. That's 3% of your customers. And when 3% of your customers freak out, it feels horrible. Because if you raise price across 500 people, that'd be 15 people freaking out, making bad online reviews, sending you threatening emails saying you don't care about your customers, saying that you've changed, saying that I liked it better than the old days when you did all the service yourself and quality has diminished. And all of a sudden all of the spikes start coming out because you raise prices. And you have to make this decision for you, for your business, for you to be able to invest in Your team like, it's not free to offer medical, it's not free to offer dental. It's not free to have paid time off. And those things cost a lot of money to do that. For your team, it is your responsibility as the steward of the business to raise prices, charge what you're worth, and make sure there's a healthy enough profit margin that when the economy shifts or when bad times come, when the off season happens, you can make it through and people are not getting laid off. Number two, we're booked solid for weeks, but I still feel guilty charging more. How do I get over that mental block? Okay, one frame that might be helpful is there are people that you cannot serve because you're so far booked out that are willing to pay a higher price. In other words, when someone's willing to pay a higher price, they value your service more. This is why customers that pay more in terms of price usually are better customers, because it means that they value your service more. And when you value something more, you treat it better. And so if you raise prices and people leave, it means that they do not value your service as much as the price that you are now putting forth, which means they didn't value your service as much as a lot of other customers that would be willing to pay more just for you to serve them. But you've been saying no to them because you've been so booked out. So by saying yes to customers at a lower price because they're existing, you are saying no to customers that would potentially want to cut the line or be able for you to serve them at a higher price. In other words, they value you more. So I like to think of it as you have a certain price and we all this price and we know what the price is, but there's a category, there's like a huge dispersion of value that your current customers attribute to your service. When you raise the threshold of price, what's happening is you're cutting out all the people that value your service the least. That is why it's no surprise that when you raise your prices, your worst customers leave. And because they value you the least. And so they will spew, they will say all sorts of horrible things. But it is your responsibility as the leader of the business to make sure you have a healthy profit margin, you get through rough economic times and you don't end up like a lot of big project companies. When we hit 2022 and interest rates went through the roof and their revenues dropped in half, and all of a sudden they couldn't charge what they worth and they have a whole bunch of debt and they have to cut their team in half in order to prevent that. We're going to charge what we're worth and we're going to grow in a sustainable manner, which means growing to capacity and raising prices when we get there. This is how much profit you made before the price increase. This is how much profit you made after the price increase. But you'll only keep your customers after a price increase if you have a premium service and premium value. The number one way to do that is have a premium website. It shows your reviews, shows your trucks, your uniforms, and shows that you're different than everyone else in your competition. So go to homeservicewebdesign.com, build a website that allows you to make this instead of this. Number three, how do you raise prices on existing clients without them feeling blindsided or thinking, I've gotten greedy. So if you have this notion, like, I don't want to be taken as greedy, especially if you live in a small town, especially if you have a lot of your customers on Facebook or other social media platforms where they share their. They talk to each other, I understand this notion. This is when information will snuff out any sort of rumors. Of course, you raising prices makes you more money. Okay? I think that the more information you give as to why you raising the prices, the less likelihood of them feeling like you're getting greedy. Because as you raise prices and you grow your business, you've been in business for 15, 20 years and now you get a nicer truck, they will just attribute nicer truck to, oh, that's cause they raised price and therefore they're greedy because they wanted the nicer truck, therefore they raised prices. You've been in business for 15 years and you drove around your little dumper truck for the first 10, so you could afford to be able to grow the business. And you invested in your team and a whole lot of other things prior to getting that truck after 15 years of work. So I understand that, but some customers are not going to. And so I think first off, you gotta ask yourself, the person that is calling you greedy, do you really want to serve them? Do they really value your service? I will also say if your service is of value, they should be able to go try a competitor and realize like, oh, I was wrong. The value based upon the price and the value discrepancy is actually not so bad. And then they might even come back to you later on. And there's been times where we have raised prices and a percentage of people leave on very bad terms and if you handle it professionally, they can still come back. And so we've done that before. We raised prices. People were very mad. They left. Online reviews are really negative and they came back six months later. And the only thing I requested them as a K. Could you just please either edit your edit or remove your review and we will honor your price and we'll just move forward. That's always been super effective. And I actually prefer them to edit their review and say like, hey, we thought they were expensive and then we would try to other people and realize no, they're like super valuable and, and they do all these things that no one else could do and they're much more reliable and they're much more professional and actually call. They actually pick up their phone. And so I would always say like, don't burn bridges when people are leaving. And one of the worst things to feel is when people are saying you're greedy and they feel blindsided. So to prevent that in your email or when you're doing a price increase, if you're really concerned about this, you're going to do two things. You're going to have information and give them reason as to why you're increasing prices. This could be around insurance, this could be around wages, this could be around shop space being increased in rent, a lot of things. Two years ago, a lot of people in our industry had a big jump in insurance. It was a good reason to be able to say, hey, this is, this is our insurance. Last year versus this year it's doubled. This is why we're moving forward with a price increase. Wages, okay, we went from $14 an hour, starting to pay to 23 an hour. We've got to pass that cost along. A couple pieces of information like that is a good way and you don't need to go into deep detail. I'd go after the easiest ones that are most visual and tie it back to the fact that you don't want to reduce quality. Like we need quality equipment, quality trucks and well trained team members in order to get those things because you deserve it. As our customer. We've got to do all of this stuff which requires a lot more cost. And now we need to pass that along too. And we haven't for the past year or two years or six months or whatever it's been. So I would give information, I would explain why you need to do the price increase. I would give examples of the cost going up and show that you haven't done it, like today, like, I didn't get my insurance yesterday and then today I did it. It's like, hey, we've tried to put this off for as long as we possibly can and we want to make sure that there is plenty of value. And we've done all these things in the past year. We've invested in our team, we've increased the base pay, we've added our benefits, we've increased the amount of insurance on our general liability so that you're protected when we're on your property. And now we need to recoup some of those costs. We're to make sure that we have a sustainable business that we can serve you for years to come. Put yourself on the kind of the moral high ground of like, I need to do this in order to be able to provide this value and as 100% the truth. But don't come from the position of like, I need more money. It's like, I have had to make these investments in the business in order to serve you at the level that you deserve. And I'm not going to compromise on that. I'm not going to have less quality equipment, I'm not going to have less maintained equipment. I'm not going to reduce my insurance, I'm not going to pay my team less, I'm not going to pay them below minimum wage or not give them benefits. These things are valuable to us and therefore we need to raise price. If you tie it to those things, it'll be more palatable. And that is the truth. I don't see. If you're making 80% profit margins and you're raising prices on customers, then yes, they have something to say. And you probably don't care about them calling you greedy. But the vast majority of us are even in a profitable business, 25, 30%. And that's not crazy. That is a third. Like one third of every dollar they give you is actually profit. That you need that third, you need the 20%, you need the 25% to be able to weather economic storms and to be able to take care of the people that that business is protecting and providing for, including your customers, because if you're not profitable, you'll go out of business. And so by hinging this on the moral high ground of we need to do this in order to make sure that the business is sustainable and that we can serve you for years to come and maintain the quality standards that we require and demand of ourselves, then you can create some separation there. And hopefully they don't call you greedy. Number four, our costs have gone up. But I don't want to look like I'm just following inflation. How do I communicate a price increase in a way that builds trust? Yeah, I never like saying, like, just blaming inflation. The fact of the matter is that yes, inflation has happened and then over the past four or five years, wages have gone up. Not just like 15, 20% like inflation says, it's gone up 25, 30%, 40% in some of our markets, if not more, in terms of wages, in terms of fuel, in terms of insurance, in terms of used vehicles, in terms of new vehicles. Interest rates, like all of this has gone up dramatically to just say inflation as a use, as a scapegoat and like rising costs. This is why I like to use information like our insurance costs have more than doubled. Our wages have gone from this base pay to this base pay. Our workers compensation has doubled. Like, by giving a few examples of the ones that are important to the customer and that they can visually see, like equipment and employees, it's more likely that they'll, it'll be palatable again. The people who fly off the handle, you don't want them as customers. They do not value your service. Get rid of them. And assuming that you have a marketing engine that can replace them, you, you shouldn't feel bad about it. I wanna replace them with customers that value my service and that are gonna see the value and are going to contribute to my team and to the business. And if someone doesn't like that, they can move on. There are other providers out there. None of us have a monopoly on lawn care or on roofing or on fencing. They can find somebody else. And you won't cry when they leave, assuming you're able to replace them with other customers. So I don't like to pin on inflation because everyone has inflation fatigue. Over the past five or six years, as costs have gone up. A lot of big corporations, our costs have gone up. So you're, we're raising prices and they're yet in the back end making hundreds of billions of dollars. And they, like the customer just knows that that money just go into a stockholder and distributions or in dividends to the shareholders. Whereas you're a small business. This goes to actual wages. This, this goes to buying more equipment. This goes to rising rents, increased amount of benefits for your team. And if you make that clear, I think that most people will take it fine. And if they don't, you don't want them as a customer. All right, number five, at what point do I stop trying to justify my price and just own it? Like, how do I know when I've earned the right to charge more? I don't think it's about rights. I think it's a matter of like, justification kind of is lumped in with more information. So when I say information, some people say, well, that means you're trying to justify the price increase. I don't see it as that way. If I'm just giving facts like our wages have gone up. This, our insurance has gone up. We have, we have tried to not raise prices for the past six to 12 months, but now we need to be doing that in order to be able to sustain these same standards of service that is information justification. I look at it differently, but, but I could see how someone would lump those in together. Here's what I will say. The more confident you are in replacing those customers, the less justification you feel like you need to give, the less information you feel like you need to give. Because if you actually don't believe that anyone can use anyone else besides yourself, like if you have a true monopoly, you just raise prices and you don't care. You don't tell anyone, you don't give them a heads up, you don't empathize with them, you don't give them reasons why you don't justify it. You don't give them any sort of secondary option like an extension on their current pricing for them to figure things out. And so I would say if you are bombarded at capacity, which means I can't serve any more customers unless I go out and buy more trucks and hire more people. But I'm not doing that because I want to be in profit mode. That gives you the most confidence to raise prices without justification. And I've seen this a lot of times. Owners. Augusta, this works almost just as good as giving more information. It's just not going to quelm the unhappy people. And that is your price is going up on this date. If you have any questions, let us know. That is no justification. You're just owning it. And the people that do that are the ones that are overwhelmed with work and need to raise prices and actually need to cut people out. The reason that I came to this last is this is actually the way to raise prices. It is also the way to get a lot of unhappy people saying negative things online. And if you live in a small community and you care about your reputation, you about care, you care about your team thinks, you care about your family, and people are gonna see on stuff on social media. I think that's when everything we've talked about before comes into play. And that is giving the reasons, being very upfront and honest about how long you've been kind of like putting up with these price increases without raising to them as the customer and passing those costs along. That is in my opinion the most humane way to do price increases. I think is the most justifiable way to raise prices. And if someone has a big problem, I can just be like, look, I gave you all information and and this just is what it is. Whereas if I just say prices are going up, you're going to leave yourself more susceptible to online reviews and negativity coming out and people saying you're greedy and all sorts of things like that. That being said, if you have leads pouring in, you don't care because you actually need people to leave. And in part by just blanketly telling them the price is different and making people mad, you kind of get rid of all the people who think you're val, you're the value in your service is less than everyone else. And so it's actually a good mechanism to get rid of people. And so in my opinion the best thing to do for price increases and for the 20 or 30% of you, they're still here. This is the actual key is you hit capacity to where you would have to go buy more trucks or hire more people to get serve more customers. You hit capacity and then you refine your marketing engine so you have so much confidence in it that if you were to raise prices, you could take one third of that price increase, put it in your marketing engine and immediately refer to replace all of the customers that leave so you're more profitable because you still have 2/3 of your price increase that goes straight to the bottom line. And then you also know that you can replace all the customers who leave with higher paying, higher value customers very quickly. This is why knowing what your customer acquisition cost is and actually knowing how to do paid ads is so important is because when you do a price increase, you can just run the math of when I raise price by X, I get X more per month. Let's call it $10,000. Okay, I know my customer acquisition cost is $100. If I spend $3,000, that means I can get 30 new customers every single month. Which means if 60 people leave within two months, I'll replace them. If I just spend 1/3 of the amount that I get extra in profit from the price increase. That's running the math. And when you get there, you don't justify and you usually don't give information. This is usually the type of price increase you see from the likes of Microsoft or Google or Netflix because they know you're not going anywhere else. You got, you got two terabytes of data on Google Drive, you're not moving nowhere. They're just going to tell you as of this date the price is going up and that's it. There's more humane ways of doing it. You can give reasons, you can tell them exactly how long you've been putting up with higher cost to you without raising the price. You can also give them a way to be able to extend their current pricing as a form of like, hey, we really value. As an existing customer, we want to maintain that we don't want to. You'd have to leave because of this price. It is going to make a meaningful impact on your family's finances. We're willing to work with you. Please contact us. Giving them away directly to a manager or some way of feeling like they are elevated above a person they just call a customer service representative. Also valuable. These are ways to be able to do it in a more humane way, in my opinion, especially in small town America, in small cities where you care about your reputation and what people say online and in the brand. So that is my two cents. All right. This has been the Home Service Millionaire podcast talking about price increases. And if you have another question that you'd like to ask, go to mikeandys.com? submit a quick video and I'll answer on the next podcast.