Why Raising Your Prices Won't Kill Your Business

“Your prices are too high!” Ever heard that before? I think con­sumers are born with this phrase engraved into their brains. No mat­ter what busi­ness you are in, peo­ple will always tell you that your prices are high. I’ve almost nev­er heard, ​“Wow! Your prices are very cheap.” Have you? If you have, raise them now, and then keep read­ing this post. I was recent­ly talk­ing to a friend of mine who runs a great paint­ing busi­ness in the Chica­go area. He was hav­ing a friend­ly con­ver­sa­tion with one of his com­peti­tors who told him what he was bid­ding his paint jobs at: $32 an hour. My friend asked what he was pay­ing his painters. The top painter was get­ting $25 an hour and the low­est paid guy $17. After a minute my friend said, ​“You aren’t mak­ing any mon­ey are you?” The com­peti­tor said that on the high­est paid employ­ee, he does­n’t make a pen­ny, and he earns around $7 an hour on the low­est paid per­son. That means he is run­ning a busi­ness mak­ing lit­tle or no prof­it. Does he real­ly want all the stress of run­ning a busi­ness (i.e. over­head, trucks, gas, pay­roll, work­er’s comp, OSHA, sched­ul­ing and a hun­dred oth­er man­age­ment tasks) when he is not mak­ing mon­ey? But he had been told by poten­tial cus­tomers that his prices are high and that his main com­peti­tors are charg­ing even less! So what is a small busi­ness own­er to do? Raise the price! Anoth­er Les­son from my Dad Most of what I’ve learned in the busi­ness world is from grow­ing up in a small-busi­ness fam­i­ly. My dad is my role mod­el. He’s always done an incred­i­ble job run­ning his paint­ing com­pa­ny. He’s oper­at­ed with no busi­ness debt and made many deci­sions that ben­e­fit his com­pa­ny and his cus­tomers. One les­son I’ve learned from him is that rais­ing your price won’t kill your busi­ness. My dad told me that at one point in his busi­ness, he real­ized he was not mak­ing much mon­ey. He ran the num­bers and saw that he was clos­ing about 35% of his leads. He had been told his prices were high, which pro­vid­ed a lot of head trash for him to sort through. After work­ing with some busi­ness coach­es and his accoun­tant, he decid­ed to raise his price, not low­er it. How much did he raise the sell­ing price? $10 an hour. In the paint­ing indus­try, it is a huge leap of faith to bump your price up so much. He kept on esti­mat­ing and sell­ing jobs and then ran the num­bers again. His clos­ing ratio was still at 35%*. It did not drop, but now he was final­ly mak­ing some mon­ey. He real­ized that peo­ple will always tell you your price is too high, and he decid­ed he would not let that both­er him. He knew he was pro­vid­ing excep­tion­al val­ue and set him­self up as the ​“Nord­strom of painters.” He began to make fur­ther changes in his busi­ness to make sure that his cus­tomers felt his prices would get them the val­ue they were expect­ing. Stay Com­petitve Rais­ing your prices is nec­es­sary for many of you read­ing this post. There may be a few of you who have a dif­fer­ent busi­ness mod­el. Maybe you are going after a type of audi­ence that is mid­dle or low­er-mid­dle class and you have to do a lot of vol­ume. If that is the case, some­times the low­er price niche works. I do have a client who runs a pro­fes­sion­al and inex­pen­sive paint­ing busi­ness. He has to sell A LOT of paint jobs to make it. For most of you who are going after the high­er-end mar­ket and offer­ing excep­tion­al ser­vices, set your­self up as the leader in your indus­try. Look at your busi­ness as a whole and make sure you not only raise your prices but exceed your cus­tomer’s expec­ta­tions. Make them know, with­out a doubt, that they picked the best. *Side note about my dad’s clos­ing ratio of 35%. Clos­ing ratios take into account what jobs you pre­qual­i­fy. In oth­er words, some com­pa­nies will pre­qual­i­fy a prospect and deem that per­son as not a good fit and will not pur­sue an appoint­ment. My dad, back in the ear­li­er days did not do a lot of pre­qual­i­fy­ing his prospects, which is why his clos­ing ratio was 35%. It would have been much high­er if he cut out some of the shop­pers. If you do pre­qual­i­fy your prospects, and are good at sales, a good bench­mark should be close to 50%+.