I had a great conversation with Rodney Koop the other day, and I wanted to share his thoughts on WHEN and WHY to change your pricing and the Kool-Aid, or myths he believes the industry has been telling us.
When it comes to “WHEN” to change your pricing, there are two lies the industry has told us.
MYTH #1: Supply chain issues: if the cost of parts increases, you have to raise your prices.
Who has taught us this myth? Wholesalers.
Because as the price of parts goes up, it cuts into profit. So, to maintain profit, they teach you to keep upping your prices. If you’re buying something for $10 and marking it up, let’s say 50%, give or take, without the reciprocal, you’re selling it for $15. You have a $5 profit. Okay. Well, now it goes up to $20, and you’re marketing it up 50%. So, now it sells for $30. And now you’re making $10. So, you see how rising costs are? The wholesaler is making more money, telling you to raise your prices so you can make more money, too. And who gets hurt in the process? Your customer.
Yes, sometimes it’s essential to raise your prices if the cost of supplies is skyrocketing, but listening directly to wholesalers about how to treat your customers can be a precarious tightrope to walk.
MYTH #2: When your problems go up:
Oh my gosh, I can’t afford marketing. Raise your prices. Oh my gosh, I can’t afford to hire technicians. Raise your prices. Oh wow, I’m having a hard time making payroll. Raise your prices. Raising your prices is a Band-Aid that doesn’t fix the bleed.
The problem is: the more our problems go up, the more we raise our prices. At some point, what’s going to happen? The market won’t be able to bear it.
So, I asked Rodney: When and why SHOULD you change your prices, then?
And his answer intrigued me.
CHANGE YOUR PRICES WHEN IT MEETS YOUR STRATEGY AND LONG- TERM GOALS.
You’re a CEO, and your strategy as a CEO is most likely centered on protecting and maximizing your company’s profit.
This means every time we have an exchange or an interaction with a customer, we should optimize it. It should be the most valuable interaction that we could possibly have with that customer.
The problem is, we’ve been too focused as an industry in taking our customers’ money. We finance them for 30 years on a water heater that we don’t think will last 10. That’s our industry’s mentality. They think that the optimal exchange with a customer is to get as much money as possible. No, the optimal exchange you can possibly have with your customer, is when they get the greatest value that they could possibly want and afford. Focus on “want” and “afford.” This is why offering menu pricing options is key. You get the maximum value from your customer when you get to provide the solution that they want. They are happy and you get paid what you’re worth.
So, what would be a reason to change your prices based on your strategies and long term goals?
Perhaps you want to start servicing a particular target neighborhood?
In order to do that, you might actually lower your prices for six to eight months in order to get your foot in the door and gain more customers.
The industry has forgotten the value of lifetime relationships with your customers, and that is priceless, so the next time someone screams RAISE your prices, look at your goals and strategies to keep lasting lifetime customers, and decide for yourself.
Do you disagree? Don’t call me, call Rodney. He’s the one that told me. (706) 259-8892