When Raising Prices Backfires BADLY!

Hey, everyone, it's Mike Andes. And today we're going to be talking to AI to see what answers it gave people that asked me questions. Now, if you're like, what in the world is going on? You can go to mikeandys.com AI and talk to the AI agent of Mike Andes that is trained on all of my content, my videos, my books, everything I've said online. Today I'm going to show you some questions that were asked of Mike AI, show you the answers, and then we're going to determine what whether or not the AI did a good job and what I would add potentially to the answers. Question was, I raised my prices to $120 an hour. One of my customers just went off on me like I was a thief. Really insulting. Did I make a mistake? All right, the answer that Mike AI gave, no, you didn't make a mistake. Raising prices is tough, but it's necessary. When your costs go up or you're maxed out on capacity, that customer's reaction says more about them than it does about your decision. When you raise prices, you'll lose some customers. It's part of the process. But the ones who stay will value your service and pay what you're worth. Plus you'll have room to replace the complainers with higher paying, better fit clients. Stick to your guns. You're running a business, not a charity. You're building a sustainable business and that means charging what you're worth. And if you're delivering great service, the great customers will stick around, let the rest go. Overall, I would give this a 9.1. We got a little more meat on the bone. I think that we could unpack, so let's go ahead and do that. So in my opinion, one of the worst things that you can do is think that you are overpriced because your competition is high priced. So I think a lot of people will start a business and they're like, oh, everyone else is charging 40, 50, $60 an hour and I'm at 70 or $80 and I'm really high priced. Remember, the customer doesn't see the hourly rate, they just see the price on the quote and that's all they care about. Which means you could have a higher hourly rate by 30 or 40%. But if you're 50% more efficient because of paper performance, you have better equipment, you have better operational efficiencies, you could still be cheaper to the customer and charge a higher hourly rate. That's why I always get confused when people are talking about hourly rates and that they're higher than their competition because it doesn't really matter. It matters how efficient you are and the price that is to the end customer. The second thing I would say is your close ratio determines whether or not you have too high of prices or not. If you raise your prices and some customers leave, I just need. If I'm in profit mode and I'm trying to just maintain the number of customers I have, assuming I'm a recurring service, I am, I am simply trying to make sure that I win enough jobs and get enough new customers to replace Churn. Those are the customers that are leaving because they pass away, because they move, because I don't do a good job, et cetera. And so I need to raise my price to the point where I just replace Churn. I will also say that if I'm growing my business, I don't want to have a 90 or 95% close ratio. That would indicate to me that your prices are still way too low. Now, if I'm in growth mode, I'm trying to grow my business. I usually target 70% close ratio as sort of the golden ticket for growth mode. It means that I am getting most of my estimates accepted. More than two out of three are being accepted. Good, I'm going to grow. But also it means that I'm not leaving so much money on the table. If 90 or 95% of my customers are accepting, I likely could raise my price by 15 or 20% and still get 75 or 80% of them to accept. You could double how many how much marketing you do and double the amount of leads that are coming in. Conversely, if you're close ratio is under like 20%. Also not good. Because even if you're in profit mode and you're like, well, I'm not trying to grow, I'm just trying to get high prices. Great. But if you're doing a bunch of estimates, you're driving around town, you're meeting with customers, that costs money, them and you answering the phone, going through that whole admin process that costs you money. And so even someone in profit mode that has high prices, I don't want to have a close ratio under 20% because ultimately I want estimate, I want the customer being weeded out before I even send them an estimate, whether that be estimate request forms on my website, whether it be over the phone qualifying the customer. I don't want to be going out and visiting 10 customers to get one or two of them to accept the proposal because it is so much overhead. To get the 10 estimates I have to pay that out. You're like, I have free estimates. No, it costs you something to get the estimate sent out. Software, admin, people driving to the customer's house, the estimator's time and the estimator's vehicle. And so if you're doing in person estimates, I don't want that close ratio under 20% even if I've raised my prices. And to avoid that because again, close ratio is number of accepted divided by total number of estimates that were sent out. I just want to avoid sending an estimate to customers that I know aren't going to accept. So what do I do? I pre qualify them. You might have a card on file requirement, a deposit, you might require deposit just to get the estimate. That is going to reduce massively the amount of estimates that you send out, but also dramatically increase your close ratio. So I see this usually as a sequence. Usually people start out they're really, really high close ratio. Then they start realizing they grew really fast, they got to raise prices. So they raise prices and their close ratio comes down to more like that 30 to 50% marker. Very good. And then they start realizing, oh my goodness, I'm getting all these leads. I invest into a great website, my trucks are rolling around, they're branded. I mean all these leads I can't get take care of all these customers. And so I'm going to raise prices again. And they keep raising prices, very good. But now their close ratio gets so low because they're, they're double the price of their competition, which they're fin fine with. But I still want to reduce the number of estimates I send out by pre qualifying the customer. So I'm not doing all this wasted work of doing proposals and getting out estimates and visiting customers and potentially losing a ton of money on admin and overhead costs. That's what I want to avoid. So there's so much you can do as you progress through that and it's not a bad problem or place to be in when you have so many leads coming in, raise your prices and then eventually get to the point where, where you might have to actually put other filters in place besides price just to keep tire kickers out. Let's go to the next question. I saw this guy give back 200 grand to his customers. I don't know what to think about it. Part of me feels like he's crazy. Like who does that? Who gives back that much money when they don't have to? When I start thinking maybe that's what's being honest really looks like standing by what you said, even if it hurts you? I don't know, man. When it giving money back the smart thing to do and when is it just throwing your future away like you're doing the right thing or just making a big mistake? It's been on my mind a lot. I think what you're referring to is one of the turnaround shows where a young man had an offer was basically like, look, it was super cheap, like $25 per cut for every single lawn. And if you weren't happy, you get all of your money back. Let's go ahead and jump into the answer that Mike AI gave and see what happened. Giving back money, especially a large amount like $200,000, is a move that can either reinforce your integrity or completely derail your business. It all comes down to why and what you're trying to achieve. If it's about fixing a legitimate mistake or fulfilling a promise that you didn't deliver on, then it's a strategic investment in your reputation. That's kind. That kind of transparency can build trust and loyalty, which pays off long term. But if it's just to prove you're honest or to avoid conflict, it's a dangerous path. You can't run a business by refunding every time someone's unhappy or to make yourself feel better. Here's the framework I'd use to decide. All right, this will be interesting. Number one, was there a clear mistake or failure to deliver? If yes, own it, refund what's fair and fix the process so it doesn't happen again. Number two, does this refund align with your long term goals? If it protects your brand or keeps a a key customer relationship intact, it might be worth it. But if it's just a knee jerk reaction to fear or guilt, it's not sustainable. Number three, can your business afford it? Giving back money is only smart if it doesn't cripple your ability to operate. You can't help customers or anyone if you're out of business. I've been. I've been in situations where I had to take the L and refund money even when I felt justified keeping it. But I've also learned that you can let can't let emotions or fear or bad reviews dictate your decisions. Sometimes the best move is to stand firm, explain your position professionally, and let the chips fall where they may. The key is to focus on the bigger picture. Building a business that's profitable, sustainable, and rooted in trust. Okay, so this specific situation was about mowing. This was not a one time big project. I think if the person asking this question would have said this was a for recurring mowing customers, I think Mike A is probably thinking as a big project, a one time customer. What actually was happening in this situation is he got like hundreds of mowing customers at a very low price. Got them all started in the middle of spring rush. All of his crew left and he was not making any money. And he's out to like 11 o' clock with flashlights on his mower trying to get lawns done. He fell way behind in the schedule, like a week, two weeks, three weeks behind the schedule. And customers were really mad. The problem was not necessarily with the refund. He just needed to get away from it and just like cut all these customers out. And so he just refunded them all their money. I do believe there's two things that could have avoided this. Number one was his reaction and number two was the offer. The reaction. In my opinion, he could just cut out a bunch of the like half of the customers and serve the other ones just fine. By just reducing the amount of customers on the schedule. He could have also just raised prices across the board to the point where half of them that way Would that made some people mad by having an introductory offer? Yes. If I remember correctly, they were already also mad at him because he was so far behind on the schedule. A lot of them probably would have left anyways, but then they would have left on their own like their own will and of him forcing them out. People are also not happy, by the way, when you just tell them you're not going to show up their house. And if I remember correctly, he just said, hey, I'm not showing up your house, I'm just refunding you all of your money. Whenever you're doing a money back guarantee of any sort, make sure you're not going to bankrupt your business. I would say the offer could have been or should have been. If you're not satisfied with the service, your last, like your last service will give you the money back. Then that way, on their way out the door, they get their money back. Not two years into service being like, yeah, I'm not happy, give me all the money for the past two years. I make it very clear as to what is what qualifies for a money back guarantee and when they can and what terms allow them to actually use it. So I've used money back guarantees. We have money back guarantees at Copilot CRM. If someone does not grow their revenue by 10% or their profit by 10%, we are going to give them their money back. And there's caveat, right? So I'm not going to allow someone like I didn't have a good year last year give me all my money back. Oh, and by the way, like, you know, I just took off a few months. Now I'm going to actually focus on the business and grow it. So the caveat is like you got to be canceling your subscription. The other caveat is you do need to prove it to me with a tax return. Those are the two tiny little caveats that allow it to, to be useful, still impactful, and people can use it. And so that's what happened I believe in this case is he allowed people to get refunded for the entire year's worth of service when if someone's not happy, they can leave. It's one thing to do it for. Like even software where we refund an entire year is crazy. But the reason we can do that is we don't have hard costs. We don't have physical labor. When someone signs up like, oh, we got to like send out the crew. There's hard costs when it comes to lawn care and landscaping. 40, 50, 60% of your revenue is direct cost and that comes in the form of materials and labor. So a refund actually costs you a lot of money. And so I'd be very careful about giving money back guarantees. And if you do give money back guarantees, I would make sure you run through the logic of what happens if someone is trying to be malicious about this or what happens if I get way behind. What happens if my crew walks out on me? What happens if everything goes bad? Could this bankrupt the business in general? Giving money back to a customer should be after I've tried to fix the problem, resolve it. And those are like one time projects. Many times it's much cheaper. If it was like a $200,000 one time job, I would definitely be trying to figure out a way to resolve the issue instead of just give them their money back. Sometimes can actually be taken better instead of just your money back. And don't call me anymore, I'm blocking your number. Like I've seen that happen. And sometimes the comments and the feedback is just as bad. Go to mike andes.com AI ask your question there and they'll give you some really good feedback. Submit your financial statements, your profit and loss statements. It'll break it down. It'll put into the 4L framework. Do a turnaround on your own business without me having to show up. Go to mike andes.com AI.