Mike Andes argues that raising prices is the fastest way to boost profits, even if you lose some customers. A 10% price increase can double profit if customer loss stays below 10%, while other tactics like better equipment or advertising take far longer to move the needle.
Do the math, because every dollar of revenue you lose, you're gonna lose 10 cents of profit. Every dollar you raise prices, you get 100 cents of profit. Let's say you're like, "I'm gonna raise prices." You get a huge backlash and you actually retract it. You say, "I'm not gonna raise prices." And because of that, you lose 10% of customers. That's like literally the worst case scenario that could ever happen with the price increase is you freak everyone out, people leave, and you have to retract the price increase. If you have a million-dollar business, This is a million dollars in revenue, 10% profit margin business, and you lose 10% of your customers, your business is gonna go to $900,000 in annual revenue and you're gonna make about $90,000 in profit. Not good. Our profit went down by 10%. Our revenue went down by 10%. Let's look at scenario 2. And this is the upside of a price increase. What's possible is that you lose 10% of your profits, you spook customers, and you don't raise the prices because it all backfires on you. You increase your prices by 10% and your business goes from $1 million in annual revenue to $1.1 million in annual revenue. Your profit just went to $200,000. That's 100% increase. That's a doubling of your profit, 'cause you were at $100,000 in profit and now you're at $200,000 in profit, because every dollar you raised was straight profit to the bottom line. And we all overthink that extra loss of 10% of revenue at the expense of doubling our profit. And so we're also afraid of, we go defend, defend, defend, defend, and we never go on the offensive of, We need to raise prices. And by doing that, you double your profits. Nothing you do this year, nothing you do this year is going to double your profits as fast as raising your prices. It's the biggest lever you have in the business. I don't care if you get better crux, better equipment, an all-star employee, you all of a sudden figure out the best customer acquisition model in the world. You run ads and just money is flowing in because all these leads are just— Nothing will double your profits like raising your prices by sending out one email or one text message to all of your customer database. You could literally double your profits in the next 24 hours by just making a decision. Low input, high output equals high leverage.
