111: Raising Prices and Achieving Long-Term Sustainability

You might have been thinking, it's time to raise my prices. Costs are up on everything from products to packaging to shipping. If you keep chipping away at your profit margin, your business won't be sustainable long term. It takes money to grow, and today we're talking about two ways to raise prices and increase your cash flow. Come join me. Welcome to the Launch Your Box podcast with weekly tips, tricks, and strategies to start, launch, and grow your subscription box. Now here's your host, Sarah Williams. Welcome back to the Launch Your Box podcast. Today we're going to talk about— I want to say it's the elephant in the room because it probably is for you, but we're going to talk about today is raising prices. And really achieving that long-term sustainability in your business. And I know that there's this struggle with raising prices, creating value, and you've probably been thinking, okay, it's really time to raise my prices because costs are up on everything right now. Costs are up with the product that we're purchasing. Product is up on the shipping. I mean, the fuel cost, the shipping cost, products are up on packaging. I went to reorder my big bulk order of packaging about 2 months ago, and I was shocked that my price went up considerably, like 30%. And that, that creates a huge barrier to what we're doing and creating this profit margin that we want, the profit margin that we need to be profitable and to have cash flow in our business. Because if you keep chipping away at your profit margin, your business won't be sustainable long-term. It takes money to grow. It takes money to grow our businesses. It takes money to grow everything in our business. So let's break this down in the different types of costs that have increased for you lately. Let's talk about shipping costs. Okay, shipping costs have continued to rise for the last 2 years. Like, there's just a constant shipping costs go up, shipping costs going up. Not only is it shipping costs that we are shipping out because our costs have gone up when we ship product out, but it's also all the product that's coming to you. Back about 4 months ago, I recorded a podcast episode. It's episode number 90. Just jot that down, put it in your notes app if you're on your phone. Episode 90, I was talking about like the age-old question of free shipping versus paid shipping, and I was doing a lot of research for that podcast episode. And while I was researching it, I was looking for different stats to determine if more people are apt to buy on free shipping or not. And so what I came across was some really great information about this free shipping threshold method. And what that means is people are charged a flat rate shipping for any dollar amount up to your threshold, and then they get free shipping after that. And I've always given like free shipping on my store, so any of the items, they get free shipping. And I wondered if that was really holding people back from buying because I'm having to wrap the shipping cost into almost every item. But if I were to wrap it into a threshold, say $100, I could lower the cost on every item, and then I would know that I'm only giving free shipping to people that buy a lot of things or buy multiple things. So I wasn't losing money on every single item. Wasn't having to tack up the cost of every single item as well. And so I started to do that, and I was able to leave some of the added cost into my product, but I was also able to add a flat rate with a threshold of $100. So I went from free shipping on everything to a flat rate of $6.99 or free shipping over $100. And you're probably thinking, well, what happened if it costs more than $6.99 to ship? Because there are some bulkier items that could cost more than that. And so I— what I did was anything that I knew if I shipped it one-off would cost me more than $6.99, maybe it would cost me $10, I would wrap that extra cost into that product. So that's how I did that. So something was going to cost me $10 to ship one-off, I would budget an extra $3 into the, the retail price of that product so that I covered myself completely on the shipping and that I wasn't going to be losing money on shipping. And so my average order value increased by 38%. So on average, people were spending about $48. That was my average order value, my AOV, prior to this new shipping, and that was with free shipping. Okay, within 90 days, that had increased 38%, and now my average order value is over— is $65 or higher. So that's my average is $65 now. And so when I switched to this flat rate shipping, I was a little concerned that if people didn't have free shipping anymore, would that make them not buy? Would my revenues go down month after month? Because I was concerned that if they got to see that they had to pay shipping now, that my sales would go down and they were less likely to purchase. But what happened is when they saw the threshold, they were more likely to add more things to their cart. Not only did my sales not go down, but they are up. Last month we had a 74% increase year over year. 74%. 74% increase. That is a huge number for my already 7-figure business, okay? 74% increase year over year, month over month from the previous year. They're still buying, and as a matter of fact, they're buying more product to meet that threshold, okay? It was like this eye-opening experiment and it just keeps getting better month after month after month. I am training them to purchase more than $48 worth of product. Okay, so here's what I did. So this is all that I did. I know it's— I know it's a little bit nerve-wracking to say, okay, Sarah, I've given all these people free shipping for how long? How am I now going to have to tell them I'm charging them shipping? This is what I did, and I didn't overthink it. I knew I needed to do this to be sustainable in my business. I knew I needed to, to do this to be more profitable. I knew that I could generate also more sales by doing this. So what I did the day that we turned this on, I announced it on a Facebook Live. So it was one of my regular lives. It wasn't specific to the shipping changing. I was doing one of my Friday Faves where I was showing new product. And I said, but wait, don't check out yet because I have more things to show you. And if you reach $100, you're going to get free shipping. We have to start charging for shipping. And I was completely transparent and I said, look, our cost is going up with shipping, our cost is going up with products, our cost is going up with packaging. And here's a way that you can still get free shipping. You can still get the free shipping by spending more, but you will be— you will have to pay for shipping from this point forward. Everybody in the comments of that live was like, we get it, everything's going up, we understand, it's totally cool. Nobody had an issue with it. That was just people that was watching me live. Okay, then I sent one email to my entire list announcing that, and it wasn't just announcing that the shipping was changing, it was here's our new arrivals of the week. And by the way, shipping, shipping has changed. And here's how we are doing the shipping now. And here's why. One live, one email mixed into another message of new arrivals. And we launched it. I was a little nervous that first weekend because we usually have a lot of sales over the weekend. And I was nervous that I was going to get some customer service issues over the weekend when my team was off. And I kept my eye on it just to see, just to buffer any of that. I never got one message about it, not one. And I was like, okay. And what I saw that day that I went live and did the new arrivals, 3/4 of the sales, the transactions that came through that day were over $100. $100, $120, $110, $106, $140. Like they were just coming in and my sales skyrocketed that day. It was no longer these $20, $30, $60 orders all day long. It was $100 orders all day long. And they were getting that free shipping, and they could see that free shipping on their cart. They could see the instant change. And I was like instantly like, oh my goodness, it's already working. And I continued to watch that over the next 30 days to see if it would fade away, to see if that would stick, and it stuck. And every day, 3/4 of my transactions daily are now over $100 order values. And it's changed my revenue, it's changed my sales, it's changed the habits of my purchasers. Also, what I've noticed is more of my clearance and sale items in my shop are being sold on a regular basis because they're looking for something to add to their cart to put them over the $100 threshold. And sometimes that's a $10 jewelry item or a $15 t-shirt, something that I have in my sales section. And I'm liquidating so much more sale product now than I ever did before because they're just looking for that tipping point to get over the $100 so they can get free shipping. And so what I did was I added an app into my, my Shopify site. It's for a free shipping bar. And basically it shows up at checkout. And so when they get to the checkout screen, there's a bar that goes across right underneath, right before where they click checkout, that says you're only $23 away from free shipping, you're only $9 away from free shipping. Whatever that threshold is, it shows them before they click to check out, and it's made a huge difference. So if you are currently charging for shipping or you're currently offering free shipping, I'm going to challenge you after this podcast to take a look at changing to a free shipping threshold. It's going to make a huge difference in both of those instances for your business. You're giving them a reason to spend more. You're giving them a benefit to spend more. And what we found is that benefit and that reason has increased our year-over-year sales significantly. So that is your homework number one, okay, from this podcast. You need to change to a free shipping threshold for 90 days and see how your results perform. Now here's the other part of this episode. Let's talk about the price of your box. If you've been in business for 6 months, a year, probably a year or longer, it might be time to raise the price of your subscription box. If you use my budget calculator, you're going to understand your profit margin. You're going to know what that profit margin is for your subscription box. And if you've been in business for a year or longer with your subscription box, you probably have seen that profit margin dwindle. And if you haven't checked your profit margin lately from that budget calculator, I want you to go check it, because what you're going to find is that your costs have gone up across the board. And so you might not be fitting into that original budget that you had aligned for your subscription box. And if you don't have my budget calculator, I'm going to give you a keyword to text me so that you can download it for free, save it on your computer so that you can use it month after month after month. If you're listening on your phone to this podcast episode, grab your phone out of your pocket. I'm gonna give you a phone number that you can text me right now while you're listening. Okay? Just do it, cuz you'll forget at the end of the episode. I just know you will. So text me to the number 940-204-0023. And text me the word budget to that number. If you didn't catch it all, just use the back button on your podcast, listen to it again, text me the word budget. Do it now before you forget. Follow that link, drop your email in, and I'll send it over to your inbox. As our profit margin dwindles, so does our cash flow. If you're panicking at the end of every single month waiting to either buy product for the next couple months or pay your bills, It's because your operating cash flow is low. And so we have to take care of that. We have to take care of our cash flow. And so if you're already feeling that crunch right now with buying product or paying your bills month after month, we've got to increase our cash flow, which means we've got to increase our profit margin. And it's not just about buying the next, next month's product. That cash flow is not just about buying more product. It's about paying yourself. It's about being able to buy in bulk to save money, like packaging. It's about being able to buy more product than last month so that you can grow your subscription. It's being able to spend money on advertising to get in front of new audiences. It's being able to hire someone for tech, marketing, or just extra set of hands to pack your boxes. It's about your overhead, your utility bills. It's all those expenses in your business. And if you forget that you have these expenses and you don't budget for them and you don't plan for them and you don't have enough operating cash flow from month to month to continue to grow in these areas, to pay yourself, to buy in bulk, to increase your product count to have money for ads, to hire someone to join your team, then we've got a consistent cash flow issue in our businesses. And we have to be able to have an increase in cash flow month after month so that we can push ourself in these different areas of operating. We can push ourself in making sure we have a paycheck. How many of you listening right now have not taken a paycheck in the last 30 days from your business? Don't you want to be able to take a paycheck? How many of you listening have told yourself, I don't have money to invest in ads to grow my audience, to grow my business? How many of you listening have been holding back hiring someone, knowing you need to hire someone, you need some help? But you just don't know how you're going to pay that person because you don't have enough cash flow from month to month. It's a problem. And if you're feeling those problems right now, you're not alone. You're not alone in feeling those, those issues in your business because most businesses have those issues at one point or another. And the only way that you're going to get out of feeling that stress from month month of having enough money to do those things is you've got to have a higher profit margin. So right now, if your profit margin's 30% and you're feeling this cash flow tightness, we need to increase our profit margin to 40% to give us more operating cash month to month. And that might mean raising your prices of your box. So how do you do this? You're like, okay, Sarah, I know I need more cash flow. How do I raise the prices of my box? So there's two ways that you can do this, and I'm going to kind of break these down for you. So if you're feeling right now, if you're listening, you're like, yes, I know I've been needing to raise my prices, it's time, let's just— okay, let's figure it out, let's make it happen this year. There's two ways that you can do this. Number one, you can just raise your prices across the board to everyone. Okay, this happened— the biggest when I saw this happen and I was kind of shocked by it. It's when Amazon raised their Prime member price. So they just say, hey, effective, you know, February 1st, you're going to go from this amount to this amount. Everybody across the board is going to now pay this price. Now, when you do that, you have to understand that you may have some attrition. You may have some churn from people that say, I don't, I don't want to pay more for this. I don't want to pay more for the same thing that I'm getting right now for a lesser price. And that's okay. Less subscribers at a higher price will make you more profitable in the long run, which will give you more operating cash flow. Okay, so if you're going to do a cross-the-board raising the prices for everyone It might be what you have to do if your profit margin is really thin right now. Um, you're going to want to run a full marketing campaign that the price is going up and when it is effective. You really need to be transparent of why the prices are going up. They know the prices are going up with everything in the world around them. Just make it clear that this is why. It's because product costs are up. It's because shipping is up. It's because packaging is up, and I can no longer give you the same thing at these prices. And I want to be here long term. I want my business to be around. I want to provide this subscription box to you going forward. I want to give you great products and really where you really love your subscription boxes. And I cannot do that at the price that everyone is at. And if that is where you're at, then you need to raise your, your prices across the board to everyone. You need to do this and give them a minimum of 30 days. So if you feel like you need to do this right now, you need to say, okay, in 30 days prices are going up. And you need to make this a full-on monthly campaign so that everybody knows. All your subscribers are getting emails. It's out on your page. It's everywhere so that nobody is caught off guard that their price will be changing. They will be charged more the next month. It needs to be out there, okay? And you just need to be transparent. And if you can show up in a transparent way that this is why, this is what's happening in this industry, those people that know, like, and trust you, those people that love your subscription, those people that have been loyal to you are going to continue, and it's not even going to be a blip on their radar that they need to cancel. So we need to get the fear out of our mind that if I raise my prices, I'm going to lose my subscribers. There may be some attrition. Some people will say, you know what, I've been thinking about canceling anyway, this is probably the time that I'm going to cancel, period. And you will lose some, but you can't let that create a scarcity mindset for you as a business owner that you need to keep your prices low, that you need to keep a really small profit margin because nobody will want my things if my prices are higher. I need you to remove that thinking from your brain because what's going to happen in 6 months from now, if you're already strapped thin, you're going to say it's not worth it anymore and you're going to close. And I've seen it over and over and over again with small businesses that don't increase their prices when they need to, and they are not sustainable. You will be, you will be one of those businesses that closes their doors for good because you weren't able to sustain this, the expenses of your business. And it's not only the current expenses, but it's being able to have cash flow to expand and grow. And if you can't do that now, we have to change something. Okay. And this could mean raising the price of your box across the board. Now that's option number 1. Option number 2 is to grandfather your existing subscribers at their current price and increase the dollar amount for any new subscriber. This is what I did about 3 years ago. And I had to raise the price of my box because I'm almost 5 and a half years in now, a little over 5 years in now. And so I ran the first 2 years with one price, and at the 3-year mark I increased it $5. It's now time for me to increase it again with all the price increases and inflation that we've seen over the last several years. It's time for me to increase that again, and I need to do it. And it just, it makes an excellent launch campaign. So what, what we can do is, is create a launch around this price increase. It is a great marketing strategy. You see big businesses doing it all the time. You see small businesses doing it. Basically, it's a get in now at our current price before the price goes up. It creates urgency, it creates value, it creates scarcity. And you will see an increase of subscribers if you launch a price increase campaign and you grandfather in everyone that signed up before that date at the older price. Okay, and what's going to happen then after that launch is over, you're going to change that price going forward. Your older subscriptions at the lower price will eventually fade over time, like you'll have attrition, you'll have churn, and the new people coming in will be paying the new price. I told you that I raised my price 3 years ago, and before I got on to record this podcast, I went over into my subscriptions and I wanted to take a look at what percentage of subscribers that I still have on my original price 66 boxes ago. 66 monthly boxes ago. How many people do I still have on that original price from 3 years ago? 25% of my subscriber base has had their subscription for 3 years or longer. 25% of my subscriber base is on the old pricing 3 years later. Most of these people had over 40 boxes that they had received or 50 boxes they had received straight month after month after month. That was a huge eye-opener to me. I didn't realize it was that many. And these are my early adopters. I call anyone on that old pricing my OGs. They have been with me that long. They deserve that discounted price. They have stayed with me, some of them over 4— most of them over 40 months, month after month after month. 25% of my subscribers have had over 40 boxes. That's amazing. That's amazing. And if they've stayed with me that long, heck, they deserve the $5 cheaper box. That's amazing. And so I want you to understand that if you grandfather in your current subscriber base and do a launch behind it, increase your numbers, and then going forward, now 3 years later, nobody even knows that there was a, a lower price point before. Nobody even knows that they're not getting the box the same price as my original 2-year, first 2-year people are. But I'll be doing another price increase this year. And I'll leave everyone that's in there now on the old pricing, and I'll run a campaign, and hopefully I'll gain some more subscribers from it, a bunch of more subscribers from it, and then I'll increase it again, and anybody new is going to be on the new price. 75% of my subscribers are on the new price point 3 years later. That's great. That's infusing all this new cash flow into my business. But now, as my prices have increased again, I need to go ahead and increase my price again to the new level. You have to raise your prices as your costs rise. Period. Period. You cannot sustain your business long-term without raising your prices. You will be out of business before you know it. You will get tired of working for free. You will be exhausted by it. You will be stressed out over paying your bills and buying product month after month. It will— it does not serve you in any way to keep your costs low because of fear of raising your prices. I need you to step out of that fear today. I'm going to encourage you, when you do raise your prices, that you go a little higher than you think you need right now to offset any potential increases that you may have in the next 6 months to a year so that you don't have to raise your prices again so quickly. I don't want you raising your prices in 6 months. So if I feel like I need a, say, a $3 price increase, if I feel like I need a $3 price increase on my box right now, I'm going to challenge you to go for $4 or $5. Give yourself some room so that if something else changes, you don't have to do another increase. Okay, stop feeling bad about raising your prices. Do the grocery stores feel bad when they raise the price of eggs or beef or milk? They don't, because they have to. They have to. It costs them more to get it, so they have to turn that cost around to you. So do you. It costs you more to package and fulfill and ship their box than it did before. And if you keep doing it with lower and lower and lower profit margin, your business will not be here in 6 months. It's non-negotiable. We're building long-lasting sustainable businesses that will continue to pay us and our employees for years to come. So you have 2 homework assignments. One, I'm going to encourage you to look at the shipping and create a threshold. That's number one. Go back and listen to episode 90 when I talked about this experiment. That is the day that I started doing this. It's been 4 months since that episode, and I wish I would have done it sooner. Number 2, I want you to take a look at your budget for your boxes. I want you to really analyze your profit margin and really assess whether it's time to raise your prices or not. And I gave you an outline of how to do that. So let's look at our prices. Let's make sure we have a solid profit margin and that we're building consistent, sustainable, long-term businesses. If the idea of creating a subscription box swirling around in your head, I encourage you to head over to launchyourboxwithsarah.com, get on our waitlist, and grab some of our free downloads to help you get started. That's launchyourboxwithsarah.com.