If You're the Cheapest, That's the Problem: How to Raise Prices

You get what you get. So price shoppers aren't loyal. They're loyal to the lowest number. If they can get something over at your competitor for $5 less, they're gone. And on their way out the door, they're going to tell you about it. Here's the hidden cost behind thin margin. The customers are going to haggle every invoice. Your team is going to burn hours and hours and hours defending the price instead of doing the work.

These price shoppers, they churn fast. Why? Because they're bargain hunters, right? Cheap begets cheap. And the thing is that they're going to give you the harshest reviews because they expect 5 star everything. The lowest paying customers are almost always the highest maintenance. You're paying them for the privilege of being abused. And that's something different in a different show and a different podcast, right? Right? And if you're thinking that they're going to turn into a great customer, they're not. They don't care. They only care about the price. That's it. They don't care about value. They don't care about service. They care about price. And not every customer is the same. Going back to the episode where your best customer is costing you money, right?

That's where we ran the margin analysis and the biggest account turned into the worst one there was. So if your analysis is telling you that it's unprofitable or you're not making money, you need to fire them. But if you're going for the lowest price in town, you're inviting those customers to come out. Gotcha. Besides just the low margin, there's a ton of hidden impact. What are some of the hidden things that impact the business? You're barely surviving, it's a volume game at that point, right? And so if you keep going and going and going, you have to keep going and going, right? You can't stop because you need that, you got to keep filling in that because the margins are so low. And if there's an unexpected surprise cost out there, right? You don't have the buffer to maintain it.

You don't have a buffer to carry that, and that's the problem. Yeah, and your team stretched thin. You can't hire more people to get ahead of it and do better quality work as well, but a bunch of challenges with it, all right? From operationally as well as financially. Right, you're gonna have it cheap, you can have it fast, or you're gonna have it in good quality. You can't have all three. Awesome. Time for a fun fact. Fun fact, and it's dead on topic for the first time. Researchers gave people the exact same wine twice but told them one bottle cost $90 and the other one cost $10. It's the same wine. People rated the expensive one as tasting genuinely better. Now here's the kicker. Brain scans showed the pleasure centers actually lit up more for the expensive one. Their brains just didn't say it was better. The price made them physically enjoy it more. So the price literally changes the experience. The price is part of the

product. When you're the cheapest, you're not just leaving money on the table, you're making your own work takes worse to the customer before they even use it. Wow. Wow. So, they get a better brain experience if you charge them more. They really do. I love it. They do. That's why we spend more money on anything. All right. More money. More money. Time for a word from our sponsors.

Quick break brought to you by Bolt Electric, serving Tacoma, Seattle and pretty much the whole Puget Sound. And this one is the episode because electrical is the one job where I found a cheaper guy is how the house burns down. That's not a bit, that's just true. The cheapest electrician is a coin flip with your drywall as the prize. Bolt does it the right way. Panel upgrades, rewiring, EV chargers, generator hookups, smart home wiring, troubleshooting, licensed, code compliant, 4.9 stars on Google.

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Vault meter? Vaultometer? This episode? That's your latest bolt meter episode. Alright, okay, let's keep going. You keep saying that price sends a message. Unpack it. What is my price actually telling the customer before they even meet me? Your price is the first thing the customer hears about your quality, and it talks before you even get to say a word. A low price says, I'm not confident this is worth more, and the customer believes you.

Why wouldn't they? Right? You're the expert on your own value. But you can go too far, right? If the price is so low, like half the quote of your nearest competitor, the customer isn't thinking bargain, they're thinking what's wrong? Something got to be on here, right? When you compete on price and price alone, you're announcing that value is not even in the argument. You've conceded the quality conversation before it even started. So let's go through a couple different pricing models that we have. Cost plus pricing, right? This is you add up your cost, tack on a margin, it prices your inputs, it has nothing to do with the outcome that's worth what the customer is looking for. And that's the cost plus trap is simply this.

It prices your inefficiency. And the thing is, when you get faster and better at the work, the cost plus rewards you with less money. You get more efficient to get less. Value based pricing is another one, and it prices the outcome. What's solving this problem worth for them? That's the question we're asking. So a dry basement is worth the same whether it took you an hour or a day.

And price is not the only signal. Your truck, the shirts, the proposal, how fast you call back. They all show up looking at that. Are they representing your company well or not? The customer who just wants the best deal still equates price with quality. Deal means good value, not lowest number. And those things are too completely different. You're not in the business of being chosen. You are in the business of being worth choosing.

And you need to reprice accordingly. Awesome. Okay, so clearly some customers are just asking for the best deal. You know, and if cheap is all they want, isn't that what you just need to give them? How do we drive them up the food chain? You know, they want to feel smart. And that's different than that question. But nobody's ever bragged about finding the cheapest surgeon. People brag about the guy who was worth it and how well it was done and what value they had.

That's the thing. They want to make sure that they are the best consumer and they're making the best choices. And hardly ever is price the consideration at the end. Gotcha. Understood. Good analogy for the surgeon. I got the cheapest surgeon. I still got my bold leg. Yeah, but they were cheap. That's right. I got a matching set. I'm the best surgeon. OK. So clearly, we need to get them moving, as I say, higher up the food chain.

Here's the fear every owner has when they start thinking about raising the prices, that they'll lose their customers. How do they achieve this? Talk me off the ledge with actual math and approach on how we can get our prices risen and make more margin. The fear is real, right? But I'm gonna destroy it with math. Because you can lose a shocking number of customers on a price increase and still make more money, okay?

So let's take our composite at 4% margin. The average job is $1,000, so he keeps, she keeps $40. Raises prices 10%. So now the new job is $1,100, right? 10% of a thousand is a hundred, add them together, 1100 bucks. It's probably like 1500 in Canadian. His cost didn't change, right? So we're gonna keep that straight there. So that's an extra $100 in pure profit. So it went from $40 to $140, that 10% increase.

That profit per job is almost three times more with that 10% increase. From $40 to $140, it's three and change. Making more profit with the same amount of work. Now, let's run in the other direction. Because that's another that really should scare you there. Let's discount that same thousand dollars by 10%. Now we're at 900 bucks. You don't make the 60 dollars, you lose 60. Right. Yeah, you don't lose, you don't make the 40, you lose the 60. Sorry, I got confused. I already went in my mouth. Right? Okay, you're only a numbers guy, don't worry about it.

Right, yeah. Don't let me do your taxes. And that's why your discount feels so harmless, but does so much damage. That 10% off is not a rounding error. That's huge. Here's the thing. When you raise your prices and you're giving good quality and you're giving good service, you're not going to lose your best customers. You're going to lose the price shoppers, the ones that are going to give you the harshest reviews. That's going to take up more of your team time because they're going to expect five-star service. This is your opportunity to shed the — people that cause 80% of your headaches.

It reminds me of a joke, Jon. A busy waiter walks up to a group of Jewish women eating lunch. He approaches the table and asks, ladies, is anything OK? You won't lose your best customers. Low margin makes price increases more powerful, not less. The thinner your margin, the more a small price bump multiplies your profit from 40 to 140. Do it on the calculator. See what that number would do to you if you raise your prices 10%.

Let that sink in a little bit. Let's get brave here. Awesome. I mean, yeah, that's a huge, the whole calculation there around raising 10% and you can lose a third of your customer base, that's crazy. That should be an aha moment to people to say, hey, actually, there's no way I'm going to lose a third of my customer base for a small increase, and it makes me that much more margin.

So, does that hold true? What is the break even on that price increase? Was that just an example? That's just an example. You'll have to do it yourself, right? But when you have a lower margin, just a conservative bump increase multiplies the profit effect. And that's something that you need to look at and say, where does it come? How many customers could I lose from this? But then the question you really need to ask yourself is, do I care if I lose them?

Right. Especially if it's the bottom feeders, right? The biggest complainers. Absolutely. Whole lot of your time as well. So yeah, it's a good way to cull, I guess, but just to say it back, it really depends on your margin level and you have to perform a calculation for your business and understand what a percentage increase actually means in terms of the net margin you pull out and therefore how many of your existing customers you could lose. Absolutely, Jon, and we're going to go over that a little bit later too, is what that effect is and all that kind of good stuff. So stay tuned. Excellent. In which case let me give you a marketing tip of the week, or M-TOW. Build the referral ask. Right? Referrals are a fantastic source of additional revenue and an easy route to more clients. Referrals are the lowest costing leads you'll ever get. And the magic for this pricing episode,

a referral customer barely asked about price. They came pre-sold based on trust. And that's what we're saying we should be pushing versus cost. They're not comparing you to three cheaper quotes because their friend already told them, you're worth it. The referred customer skips the whole price fight. That's the opposite of the bargain hunter. Exactly right. But here's the problem. Most owners just hope for referrals and hope is not a system.

So you have to — one step this week, build your ask into your process at one specific moment in time. Right after a customer tells you they're happy, say it in plain words. The biggest compliment you can give us is sending us someone like you. Pick that trigger moment this week, script the one sentence, that's it. That's it? That is it. Alright, well that amazing marketing tip, or M-TOW, it was brought to you by Bolt Electric.

I bet you they are now regretting saying yes to sponsoring this episode. So one more from Bolt Electric, and I want you to talk about the words code compliant. Whisper it tonight, sweet nothings into your loved one's ears, code compliant. Because they don't sound sexy until you try to sell your house or nighttime. I'm gonna whisper that in bed tonight. You're so code compliant. You have a whole thing about this, don't you?

I have a whole thing. The bargain electrician's work looks fine right up until the inspector shows up and turns your closing into a hostage situation. I live in Columbia, so I know about those. Bolt doesn't decode for the first time, so it passes the first time. Panel upgrades, rewiring old houses, EV chargers, backup generators for when the Washington rain finally takes the grid down. Which in the Pacific Northwest is less if and more Tuesday.

As a Canadian I'll say the one thing we truly understand is losing power and bad weather. It's basically our version of a national holiday. We light a candle, stare into the dark and we reconnect with our ancestors. That's your one. That is my one. Bolt Electric, 253-224-3837, boltwa.com. Tacoma, Seattle and the whole Sound. Do it right, do it once. That spit wasn't even scripted. We're getting good at this shit, Ryan. Oh Lee, we have more fun than we deserve. True dat. Yep. Okay, so yeah, as per last segment I believe the math. Now the scary part. How do we raise it without blowing up the whole business? Give me the playbook.

Reposition before you price. If you just raise the number without raising the story, it's just a more expensive version of the same thing. You get to change what you're selling first. So lead with the outcome and guarantee, not the hours. Package it. Name it. Make the value legible. Elite, precision, legendary, Ferrari. Put a name to it. It's the wine bottle thing. If you raise on value, don't apologize.

Don't sneak it in and hope nobody notices. State it plainly. We've invested in X, and our pricing reflects the quality you can count on. So going back to your two episodes where you confiscated the episode we lost half our viewers and listeners, right? You actually did say something that was worthwhile in the old hour and a half of diatribe. Nobody heard it though. Well, they're gonna listen, 'cause it's from me, right?

Okay, if you repeat it, it's much better. Absolutely, right? So reposition before you reprice, right? That's the position step of PACE doing real work. Positioning isn't a branding exercise you do when you're bored. It's a thing that holds a new number up. If you skip it, and all you've got is a bigger price attached to the same story. Tell your team before you tell your market. This is a huge one.

The new price dies at the counter if the person quoting it doesn't believe it. Well, it's just this price last week, what happened? I'll give you the old price again. They can't apologize for the price increase. They have to know it, believe it, understand it. That's the new price. And this is your time to sell something real. So pick a time. Is it a new year, new season, a service you actually improved?

A price change with no reason is just an announcement, right? So you need to make it part of something bigger and have it stay in effect. And those are two good examples of doing that. And then you can grandfather your customers and level them up little by little, 5% increase, 10% increase, what it is, or get rid of them. If they're price shoppers, they're taking way too much time than they need to, then get rid of them.

That's it. The new customers don't get the new prices immediately. The reason is that they don't know about your old prices. They're not stuck on that number. It's a new ball game for them. So your price is the price right now. That's a good perspective. And then you might get some pushback, right? That you're more than the other guy, right? Well, yeah, we got it, but we offer this and that and that, right?

And the other guy doesn't. We have these certifications, these other people don't, right? And you can also slip in a comment like this where, yeah, you know what? If you want to go use the other eyes, go ahead, but make sure, you know, to lock up your lurker cabinet if they're working in the house. All right? I mean... Yeah. Let me check the Epson files. The other thing is that you are going to lose.

At some point, somebody's going to push you back, but that's the whole reason. If nobody pushes you back on that price increase, you're still too low. Price it up again, right? So if you're scared, raise it in steps, right? We should be charging double this. Fantastic. Ease it up then. 10% next month, 10% again next month, you'll get there, right? And if you haven't raised your prices in years, knock knock, hi I'm inflation, where have you been? All I've been doing is taking money out of your bank account this entire time.

Raise them. Got it. So back to our sponsors, you better get your electrical work done before Bolt raises their prices. 10% going up next month. Yeah. That discount just disappeared. Jump on it before they hear this episode. We've got about a week. That's right. Two if you're lucky. I really like what you said there. Just about how you package it, you know, providing more value in your package and then also bumping it up with that.

And that, to me, makes a ton of sense. And it's super easy these days when you've got additional platforms and things that you can include, right? Things that can be built with your service. I think it's just a really quick, easy add and then it's the Ferrari, right? I don't know if anybody will call their service the Ferrari, right? But there might be some liabilities with that. But yeah, just upping your quality. So your marketing service is just about to be improved, Ryan. I'm just letting you know.

Thank you. I mean, it's pretty easy. If you have 4.9 star Google reviews, up your price, people are getting quality, right? Our cheaper competitor has 3.9 stars, which one you want? A little bit more or roll the dice with the other one? Absolutely, yeah, go read the reviews. We're increasing and improving our service, you're getting higher quality workers, we've got a higher skilled team, therefore that's why we're bumping up our pricing. And yeah, go check out the competition if you really do want to move. Okay, so let's, as per usual, jump in. Owners on the commute listening to our episode, the one owner. What is the one thing they do this week? So pick one thing you sell and raise the price 10% this week. Don't worry about the calculations. Just do it. Right, not the whole book, one thing, one single service, one package, that's it. And pick the something that you are genuinely good at and slightly bored by.

If you can do it in your sleep, then you're not charging to learn from it. So there's going to be efficiencies there. And this is what's going to impact it. Impact it more because most of it's going to go to profit. And apply it to new customers starting now. You're not renegotiating with anyone. This is the price. That's what it is going forward. And then I want you to do what most owners never do.

Actually watch what happens for 30 days. Count how many people buck. It's always going to be fewer than the number that you think. And what usually happens is nothing. The most common result is people continue to buy, the phone still rings, and you just simply got more money in your bank account at the end of the exercise. Write down your three best customers and your three worst. Notice which group pays the most and complains the least. That's not a coincidence.

That's the entire lesson. You're really one price increase away from the information that's going to change your business forever. So go get it. And if raising the price makes you nervous because you're not totally sure what makes you different, that's the next conversation. The number only holds if your answer to why you is better than where cheaper. Awesome. One concrete move this week, one service, 10% new customers only, starting with the next quote you send.

It's not the next quarter that you plan this for. Do it right away. That's it. Good stuff. Okay, time for the takeaway. So being cheapest is a position that anyone can take from you tomorrow. Valuable is a position you own, but when you compete on price you tell the market that value is in your argument and you recruit the exact customers who will haggle every invoice, churn the fastest, complain the loudest, all while handing you the thinnest margin you've got.

The way out isn't a discount, it's a decision. Price the outcome, not the hours. Raise on value, don't apologize. Let the bargain hunters self-select out because losing the wrong 30 of your customer to a price increase usually means more profit, less work, a happy team, and you get your Saturdays back. The math is on your side, and the thinner your margins, the more it actually favors you.

So stop being the cheapest. Start being worth choosing. Know you're valuable. Because as Stuart Smalley said, you're good enough, you're smart enough, and doggone it, people like you. I don't know who Stuart Smalley is, but he sounds Canadian. That was Al Franken, Saturday Night Live. Actually, Al Franken is in Minnesota, close enough. Awesome. All right. I think this episode is one of the most helpful because it's so impactful right away. So let's hope that people act on what we've said. Hopefully they've made it all the way through to here, to the end. Yeah, I mean, it falls off after M-TOW for sure. In our podcast notes, we're going to just let you know when that M-TOW is so you can just fast forward. We'll have a fast forward button, like skip next.

Yeah, that's great. A high pitched whining sound before and then it dies and you know you got to that valuable moment. By the way, this is probably one of my top 20 favorite episodes we've done. Excellent. That's great. Well, I think it's the host that makes it. Maybe not. I mean, it's too bad we only have like 15 YouTube views because you're dreaming, bro. Well, you know what? Maybe they'll increase when I swap my llama and donkey images to my actual headshot. Who knows?

You know, we're gonna track it because it might be going back on. Yes, suddenly explosion. Look at all these listeners. Alrighty, that's it, that's a wrap. Thanks, Ryan. Thank you, enjoy. Hasta luego.

direction. New episodes drop every week. Until next time, stop burning the treadmill and start building something you can actually sell.