Who wants to increase sales? I recently wrote about 4 ways to make sure your business always has enough money. You can see that here.
The 4th way I share is usually the last that a small business owner will implement because they’re scared. Chicken. Knees shaking. Cold sweat at 3am type fear.
Today’s post is long so pour yourself a Scotch, cold beer, iced tea or your beverage of choice. Get comfy and pay attention. This is game-changing if you own a business…specifically, a service business.
Raise Your Price You Sally
Unless your name is Sally and your a girl, that was meant to provoke you a bit. If you’ve owned a business for more than a month then you’ve probably seen how you will bend over backwards for your clients and put up with way too much crap from employees. You will work yourself into a stressful frenzy trying to get more leads because that’s what everyone tells you will help you have a strong business.
You hire coaches, accountants and anyone else you think will help your business. You hire people to labor for you or temp for you, put them in front of your clients and you barely know them or what they can or can’t do. You roll the dice on many, many things without much hesitation.
But, ask you to raise your price 20% right now and you get all puckered up and whine with all the excuses as to why you can’t in your market or current situation.
When I owned a painting company I consistently sold my work between 30-70% higher than my competitors. In some cases 100% more…no joke. My company had a reputation for being expensive.
I was a Sally at one point too. I was afraid to lose jobs so I constantly sharpened my pencil and looked for ways to be more competitive. Then, in November of 2008 I had no work on the calendar for my company. No deposits coming in. I told my business partner it would be ok and that I would handle it.
I had 12 estimates scheduled for that week so I did what anyone would do when they really need the work…
I raised my labor rates by $30 per man-hour. I didn’t raise them to $30 an hour. I raised them from $40 to $70 per labor hour estimated. I did it overnight. When most were lowering their prices I chose to ‘sack up’ and make a play for my company.
My logic was this: If we didn’t have a lot of volume, then I needed to make more on each project in order to hit my break-even point. I’ll spare the other lecturing on COGS and Gross Profit right now, but I knew that Gross Profit was key to surviving.
The result of this manly move? I sold 8 of the 12 jobs, filled the calendar for 6 weeks and blew out our break-even point. I went on a massive selling streak over the next few months and made money. That was also about the time the economy took a dump…
Why did it work? I’ve certainly pondered that over the years and I’ve narrowed it down to these few things:
- I knew my math. That gave me confidence in the price I needed to sell at.
- I knew I had better people and we did better work and that I needed to make a profit in order to stay in the game.
- I wanted a strong business. I spent too many days at the gas pump wondering if the card would work. I spent too many nights hoping we’d have enough money to meet our $50k payroll each month.
- I wanted to be the best in my industry. That meant better people, quality, service, follow-up, etc…that all costs more. That all demanded that I raise my prices so I could continue being the best. You get what you pay for.
In short, I looked for ways to increase value instead of ways to sharpen my pencil. I got better as a sales guy. I hired a coach and upped my game. After a year of that we were hiring when competitors were closing shop. We still had very hard times, but selling our work at higher rates is what kept us alive.
Have the guts to raise your price instead of racing to the bottom.
A Quick Math Lesson & A Happy Guy Named Steve
Need more convincing? Look at this math. Disclaimer: I’m making up these numbers for our example. Your percentages will vary.
Landscaper Bob charges $35 to cut a lawn. He does 100 cuts per week and works his tail off. For the sake of our example, lets say that it costs him $20 in labor, burden, fuel (all his Cost of Goods Sold) to do a lawn. That means he makes $15 per lawn in Gross Profit if all goes right. That’s about a 42% gross profit. Quick Refresher: Gross Profit is what you have left to pay overhead and NET Profit.
Bob then decides to raise his price to $45 per lawn.That’s about a 29% increase.
Bob ticks off 20% or 20 of his clients with his price increase and they bail. Good! Here’s why…
Now, he’s buying less gas for the mowers and the truck. He’s also paying out less in labor due to the loss in clients. This also means less in taxes and workers comp. So, now lets pretend his cost to cut that lawn is now reduced to $17 instead of the $20 it was.
He also can train his guys to add more value while they’re at a home since they don’t need to fit so many cuts in each day. So, his Crew Leader takes an extra minute to bring in the garbage cans, pick up some dog crap and chat with Mrs. Jones for a minute…all good marketing. Strengthening the relationship…adding value. She’s now connected to Bob’s company and can’t imagine using anyone else no matter how cheap they are.
Let’s get back to the math. Bob was bringing in $3500 per week with those 100 cuts. His GP was $1470 (42% of the $3500). With the increase he’s now cutting 80 lawns @ $45 for $3600 per week. Since his costs are a bit lower now and his sales price is higher, his gross profit jumps to 62% or $2232 left over to go toward overhead. That’s $762 more to work with!
He worked less and made more. Not possible you say?
After 1 year of doing exactly this, my painting company raised its GP by about 20% which meant more than $120k in Gross Profit money.
Steve Shinholser is another guy who gets this. He owns Premier Ponds in Burtonsville, Maryland. When most guys in his area charge $400 for something he charges $1200. When they have a hard time selling a pond install for $10k he sells it for $15k.
Steve is not charging way more just because he wants to. He’s doing it because he has a strong commitment to building his brand, taking care of his family and ensuring that he’s in the game long enough to stand behind his work for his clients. When you meet him he’s also pretty happy. He’s not stressed out like most contractors are.
It’s Your Move
I triple dog dare you to raise your prices on your next 5 proposals. If you truly are better than the other guys then you’re worth it. Especially in the trades…you work with dangerous equipment, dangerous environments from time to time and also have way more that can go wrong on a job than most businesses ever need to deal with. You make a mistake, your fault or not…it’s expensive!
I’ve always thought it strange that the guys who take massive risks with their bodies and their wallets are the first to drop their pants and show the world their sharpened pencil.
Hopefully, that’s not you.