today we increased prices ACROSS THE BOARD!

Hey, everyone, it's Mike Andes. And today we're going to be talking about why today we raised prices at Augusta Lawn Care at our very first location. If you don't know who I am, Mike Andes, the founder of Augusta Lawn Care, we have almost 100 locations around North America. The very first one is the one that started about eight, nine years ago, and it's still in operation today. We're not trying to grow very quickly. We actually don't grow the top line revenue at all. We're always just trying to optimize it, make it more efficient, test the systems and maximize our margins. And that's a very important distinction because today I'm talking about why we're raising prices and talk about exactly what we're doing and show you on a chart how I rationalize when you should raise prices. So basically, we were going to raise prices this past spring. However, right at the beginning of March, when we start our mowing season, we had the war in Ukraine that broke out, and because of that, fuel prices went through the roof. All of a sudden, people started beginning really conscious about prices. And the inflation that was already rampant all of a sudden became a bigger issue, and people started paying attention to their budgets and things like that. So we figured, you know what? We're not going to raise prices now. That did not change the fact that our fuel went way up. We started offering health benefits. We had more expenses because of the headquarters that we're building. Our expenses absolutely went up with inflation and everything else. Cost of parts and fixing trucks just like doubled and triple is horrible. And so we decided, hey, look, we got to raise prices. And I've always talked about raising prices when demand is high. And usually that's going to be during the spring rush for a home improvement business or at a time when lots of work is coming in. Because if there's lots of work coming in for you, it probably means that there's a lot of work coming in for all your competitors and they're behind and they can't find laborers, they can't find employees. So it's a good time to kind of make sure that you're raising prices during that time, not when it's slow and customers have the luxury of getting five quotes tomorrow. So we kind of are at the end of spring rush, and we decided today, you know what it's getting in June, first day of June, let's just go ahead and raise prices across the board for all mowing customers. $5 per cut. We're not going to get in the weeds of which ones are priced correctly, which one have the correct budget hours. We're seeing a blanket price increase across the board because of inflation to cover costs and increase our margins. And so we're on P4P pay for performance. So when we raise prices, we theoretically are giving a chunk of that to the employees, too. So it helps bring wages up, which helps reduce attrition and hopefully retain employees as well. But today I'm going to talk about why we raised prices and why some people should and some other people should not raise prices. Because at Augusta Lawn Care, we have what we call Augusta Nations Facebook group, and we have discussions in there. And I mentioned today that that location, the very first one, was raising prices. And one of our locations said, hey, I raised prices by $5 across the board and I lost 25% of my customer base. And I'm very confident we'll lose less than 1 or 2% when we raise prices at this existing location. So the question is, why is one person wrong? One person is incorrect. Is it just because the timing's not necessarily. I'm going to show today how you can make sure that your pricing is placed in a way that's going to be maximizing your profit. Now, keep in mind, maximization of profit is maybe something you don't want to be doing if you're trying to grow very quickly. So if you're in the beginning stages of your business, you're trying to double this year and then double the next year. You're growing really fast, and that's important to you. This might not be the best strategy for you, and that is profit maximization. But I'm going to talk about this because I think most people get out of business after five, 10 years. The ones that last five, 10 years, they've gotten through, like, the learning hurdles and the bumps. But usually it's pricing and profitability and margins that keeps them from being successful and maintaining a sustainable business. So that's what I want to talk about today. The companies that you've grown to a certain size and you actually like, man, I'm. I've grown. I don't need to grow a bunch more, but I'm not making a profit. It's very good chance your pricing's off. It's a very good chance there's pricing that you can increase your margins on. So let's go ahead and jump into it. So profit maximization is what we're talking about. And if you've watched my videos in the past, you know that when I talk and write at the same time. I usually make mistakes, so. Welcome. All right, so all good things can be explained in a chart. So let's go ahead and chart this out. On the Y axis, the left hand side here we got close ratio. This is the percentage of estimates that get accepted. You could also look at this when it comes to price increases as the percentage of customers that stay on with you. You know, if everyone just stays on with you after a price increase, theoretically you could say your close ratio is 100% your close percentage. But this also has to do with just raising prices in general. Your close ratio is the number of estimates they accepted divided by the total number of estimates given. Now on the bottom here we have price. Okay, now when you're looking at a chart like this, it's always really good to look at the extremes to be able to determine and understand the graph. So let's just assume that price is very, very low. So it's way on the left hand side here. That means that close ratio is going to be very high. And that makes sense. Theoretically, if you charge $0 for all of your services, it was free. You should have 100% close ratio. Assuming you're not like, you know, weirding out the custom, they don't want you on their property. You should be able to close 100% of the deals if your prices were at zero. Now that being said, if your prices were infinitely high, you'd eventually get to a point where you wouldn't close any deals. Your, your close ratio would be zero. If we tripled prices tomorrow, like on our price increase like we did today, we just did $5 across the board for every cut. If we would have done like $300 price increase for all our lawns, we probably would have lost everybody. And so that's, that's like far extreme over here on the right hand side. So as price gets higher, close ratio goods get lower. Now what most people think of when I talk about that relationship is they think of a linear chart like this and that is as price goes up, close ratio goes down. And that's true, but it's not as simple as that. And that's what I want to talk about today. Because people get wrapped up in this and they think, oh well, if I mark, if I move my price no 2 units this direction, it means I'm going to move my close ratio down 2 units this direction and I'm going to end up here. That's not true. There is not a linear relationship between price and close ratio. And that is what the video is about today. So this is what I believe this graph actually looks like. And that is, let's just think about it conceptually. If you go free and you're 100% close ratio up here in the top left, what happens when we start charging price? It's going to really quickly dive down our close ratio because we're charging anything, like any money whatsoever. You're going to start having a lower close ratio pretty dramatically, pretty quickly. Price sensitivity at the front of the bell curve is much more prevalent. But what happens as you begin to increase your price is, yes, your close ratio is going down, but it's starting to plateau. And then what happens is you hit a certain point where it really starts to tail off. Okay, now, the whole premise of this entire video is if you want to maximize profit, you want to be approximately right here on the graph right before you start having a massive decline in demand and you start having your close ratio drop dramatically, or when you raise prices, you have a massive amount of people cancel right before that point. But you also don't want to be over here, because this is what's really, really interesting in my opinion, when it comes to pricing. All right, let's see here. Let's say right here our prices are, let's say $50 per hour. Okay? So per hour is $50. And over here is $70 per hour is our hourly rate to the customer. Now, this is what's really cool, is I'm literally, when I go from 50 to $70 per hour, I'm literally increasing my prices by like 40%. Now, in doing that, I am not reducing my close ratio by 40%. See, watch what happens here. If I look at my close ratio here, maybe this is a 50% close ratio. 50% of your customers accept the job. But then when I raise my price from 50 to 70, and again, I'm just using arbitrary numbers to make this point, maybe my close ratio goes down to 40%, and this is profit maximization. And that is I only reduced my close ratio by 10%, but in doing so, I was able to increase my hourly rate by $20. And I increased approximately 40% of my revenue and literally probably doubled or tripled my profit. I probably had a 2-3x return or increase in my profits. My bottom line profits increased that much. How do you know? How can you say that? Well, let's assume that we have a $40 cost per hour and we were charging previously $50 per hour. So if we're, if we were doing that, that would assume that we had a profit of $10 per hour of labor. Okay. Because ultimately, as people in the home improvement industry, we're really just marking up labor. That's how we make profit. But if I can change that $50 all of a sudden to $70 per hour, what happens is my profit goes from 10 to $30 per hour. What did I do there? I just had a 3x return, a 3 times 300% increase in my profitability simply by raising my price. Now, for one of our franchisees that was talking in the Facebook group today, they're 100% right. They increased their price by $5 per cut and immediately saw 25% reduction of their client base. Not good. What was what? Where were they on this curve? They were right here. They were already at profit maximization for their market. Why? I'm against people going on Facebook groups and saying how much they charge and they raise their price. And no one, no one canceled. Okay, great. That's for you. That's for your price range. That's for your market, that's for your services, whatever. But what you need to do is determine what this point is for your business. If you're trying to maximize profit, again, if you're trying to maximize growth, you might be okay being a little bit further left. I'm trying to point to this a little bit further left on this graph. But if you're trying to maximize profit, you've gotten past the first few years of massive growth. This is usually happening in years three to five in your company because you start getting past, okay, I want to grow, grow, grow, and I'm profitable and make this business actually sustainable. And so when you come to that period of time in the business and you start wanting to determine, what is that point that I can charge the highest price without losing too many of my customers. This is what I want you to do. I want you to increase the prices of your services by 10%. Okay? And I want you to do that consistently, maybe every six months or 12 months, until you lose, till you lose 20% of customers. Okay? This goes back to the rule of 20% of your customers create 80% of your issues. And 20% of your customers also create 80% of your profits. And so I want you to keep raising prices until you lose 20% of your customers. You say, well, what does that mean? That means you're hitting equilibrium. That means you're hitting this profit maximization standpoint where you begin to get to the point where you're starting to lose customers. That's when you're approaching this curve here, and you need to stop raising prices in order so you don't have a collapse of demand. You don't have customers leaving, but you're maximizing your profit. Because what people fail to realize is that there is this plateau here. There's a space in time where there's price elasticity. And raising your prices marginally does not dramatically decrease your close ratio. And customers are not going to leave. But when they start to do that, as you consistently raise prices over the course of several years, you'll hit a point where you start seeing people capitulate, you start seeing people leave, you raise price by $5 again, and all of a sudden you lose 10% of your customers. That's a warning sign. When you lose 20%, that is when you have now, in my opinion, hit this profit maximization standpoint. You say, well, what can I do? That means I can't raise prices ever again. I can't make my business more profitable. No, but it means the value that you're providing those customers. In their mind, the perceived value is only at a certain level of price right here. So you can do several things. One, you can be more efficient. You can institute something like pay for performance. You can check out p4psoftware.com/training, all free. Learn how to be more efficient with your labor. You can make sure that you have standardization of equipment, make sure things are more efficient. You cut out all the waste in the company. You don't have as much overhead. You don't have a bunch of shop space and a whole bunch of debt and a bunch of rent and utilities and office. Like, you can cut that stuff out. That's the first thing you can do. But what you can also do is focus on value. How can I make sure that when I raise my price another $5, people don't, don't look because they're like, this is the best company. They're uniformed. I can talk to their employees. When I call, they answer the phone. They're responsive. I can have a credit card file. I don't have to worry about them. They're really professional. They do a great. I don't have to call them back. That is the type of value that allows this graph to get flatter right here. This maximization of profit gets extended the more value that you provided the customer, and it makes your service more and more sticky. They don't want to leave you because there's risk to leaving you. They could potentially go to another provider that's charging them $10 less per cut. But guess what? They don't know if that person's going to take care of them. They don't know if they're going to answer their phone. They don't know if they're going to have a professional website. If they don't know if they're going to show up in uniforms and a clean truck. They don't know if they're going to show up trained employees that aren't smoking and cut off shorts and blasting loud music in their neighborhood and their hoa. That's what they're concerned about. And making your service higher value is going to make your service more sticky and flatten out this curve when it comes to your pricing. So I encourage you follow this rule right here. Raise your prices by 10% consistently, maybe it's every six or 12 months until the point where you start losing 10, 15, 20% of your customers. That's the point where your profit has been maximized. And that's the point where I think you should stay. If you're trying to maximize profit in your business. If you're in those first few years, you're probably going to lower your margins in exchange for that maximization of close ratio. And that's a completely different topic. But ultimately you're going to lower your price to make sure you get every single estimate, every single customer you possibly can, even if it's at the price of having lower margins. If you are interested in other ways to increase your profits, check this video out here. It'll be super helpful in making sure that your home improvement business becomes more profitable. We'll see you tomorrow.