I’ve Never Raised My Prices

[Music] hello everyone welcome to what used to be the 21 hats podcast and is now the business Advantage TV podcast I'm your host Lauren Feldman our topic this week is pricing why it's a struggle for many businesses we discuss whether more businesses fail because they charge too much or because they charge too little Dana White who has never raised her prices tells us she always worries if I raise my prices is this the decision that's going to make me close my doors Jay Golds tells us about a customer who came into its picture framing store and objected to a quoted price wow that's a lot more than the other place I've gone to she said really responded Jay salesperson why don't you go there well they're out of business and that Jay tells us explains why so many picture framers are no longer in business they get beat up by the customers and they're afraid to charge what they need to charge and they go out of business we recorded this episode in January before the crisis hit but we think it's even more relevant today as we come out of the shutdown in business has try to figure out how to make up for the lost time and increased costs even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations will if nothing else let owners know they are not alone in facing these challenges this week's 21 hats podcast lineup features Karen Clark Cole who is CEO of blink a user experience research and design firm in Seattle Jay goz whose businesses in Chicago include the picture frame shop artist frame service and a home furnishing store Jason home and Dana white who is CEO of paral Boyd a chain of hair salons based in Detroit the episode is titled I've never raised my [Music] prices I want to start today by talking about pricing uh I really think this is a topic that gets short shrift it's so important yet it's rarely discussed and I think there's a lot of confusion about uh the right way to approach it uh so first of all what I'd like to do is to start by asking each of you when was the last time you raised your prices Dana why why don't you go first so I've never raised my prices and you've been in business since seven years since 2012 uh this will be my 2020 November will be my my eighth year um and that is going to change in the eth year of being in business it's time for me to raise my prices absolutely Karen how about you when was the last time you raised your prices we evaluated every year so um probably last year uh officially the thing with us though is we we work on fixed Bid And so in a lot of cases it's what does that mean fixed bid it means that we give you a price and that's what it will cost um on a project basis there's a period of time where the project starts and then it ends um and you know some time and materials would be that we just bill you by the hour and however long it takes is what it's going to cost um but we give an estimate upfront um and then actually turn it into a fixed fee price um so that gives us some wiggle room on pricing within that so some clients um need a break and others don't what we call Value billing is what we do in a lot of cases um based on the kind of work that we're doing within that project so it it's a bit of a vague answer but our rates are a bit fluid if you make the decision to raise your rates how do you do it does that mean that your hourly rate increases what what changes yeah everything is all of our fixed fees are based on an hourly rate to start with got it how about you Jay uh I do it regularly and I've learned over the years that pricing is like emotional eating there's emotional pricing and it's bad that oh my God uh I don't want to charge anymore uh competition's out there and at the end of the day there's a price that you have to charge to make money it's difficult to raise prices but it's necessary and what happens is and I've been through this new numerous times you get into a recession you're losing customers you're freaked out the last thing you want to do is make it worse and raise prices and then the economy comes back a little bit and you're slow to adjust the pricing and it kills you people talk about competition they talk about it's hard to hire people they talk about Banks pricing is a critical piece to making money where are you in your cycle when was the last time you raised and and what's your thinking at the moment I adjust them regularly because the material costs keep going up and I've done speeches actually to the salon industry and one of the problems in the salon industry is you don't have a cost of good soul to speak other than the people working there so it's it's not as easy if me the molding price goes up the glass price goes up we mark it up it automatically raises the price minimum wage has gone up a dollar an hour every year for the last four years we're paying sick days now that we didn't used to pay health insurance is out of control the labor market is so tight where our labor costs are just going up like crazy and I got to change my formulas because it and then my my real estate taxes have just gone up dramatically and weren't in the quote unquote formula you know the molding goes up you raise the price but nowhere in my pricing formula is oh and we need to charge x% for the real estate taxes so it's a extremely challenging problem and it's very emotional that you're afraid of well I don't want to price myself out of the market and unfortunately what happens is people price themselves out of business because they just don't charge enough and you know so it's a huge thing for me because I'm I'm manufacturing custom picture framing I mean it's a manufacturing business it's also a retail business it's so a direct sales online business so I have to come up with pricing that like Works in all these different Arenas let's go back to you Dana how did you think originally about pricing what were you considering when you made the decision what you wanted to charge I considered what my competition was charging and then I looked at what would make me different and what my guests would be getting in the salon um and then I also thought about you know the how much is how much do I need to make a week to cover the bills or a day um and so once I did that I had a sweet spot of Boom $40 per head when you looked at the competition were you looking to price to compete with that competition or were you thinking we provide a better service so we can charge more than the competition both I was looking to compete what I didn't want a guess to say is although it's nice I don't want to go there because it's too expensive I thought you know let's price competitively I didn't want price to be an issue for them is a deciding factor of whether to to come to my salons or to one of the the other competition or to their personal hair stylist how can you both not price yourself uh above the competition but also try to charge for a superior service that's a great question I think it's because there is not really any direct competition right so there aren't any other walk-in only hair salons um in the area um and the one that's similar is very different if that makes any sense like they're not very deliberate about um some of the things that we're deliberate about I think when I first open instead of saying you're going to pay for all that we're going to price slightly higher but not so high that you're like you know what I'd rather go over here because it's cheaper and it may not be in the best area and they may not be very deliberate about customer service or anything else for that matter but there's the the price is so different that I'm just going to stick over here in this area so I said no just raise it slightly above but also make sure you can pay your bills every week or day and then yeah that was pretty much here's the issue that is a rookie mistake it's called price elasticity and the fact of the matter is there will always be someone that isn't going to come to your business because your price is too high even if it isn't too high the question is if you raise your prices 10% are you going to lose 10% of your business are you gon to lose 30% of your business right and the answer is the definition of price elasticity is whether you lose more business when you raise your price 10% if you lose more than 10% then it is an elastic and versus you lose less than 10% and the answer is in most businesses you're not going to lose as much as you raise the price which means you're going to make more money because even if you raise prices 10% and you lose 10% of your business you're going to make more money now because you've got less labor and materials and I think the you know it's time to raise your prices when your customers say it's time to raise your prices that would seem like a really good sign yeah when they say pretty overwhelmingly Dana you know it's time right and so we're going to be doing that this year why not this week if your customers are asking you to do it um that's what I was wondering yeah right um because I want to do it correctly and in in my opinion with my customers you have to tell them and give them time you can't change it tomorrow and send out an email and then when they come in on you know Saturday they say okay but they're asking you to raise your prices well I mean not 100% of them but enough of them are to where okay we'll do it we're going to you know do it in a short email campaign we're going to give them enough time um to say because there are some people that are going to need a heads up especially people who have memberships um you know they have to to kind of plan for it so I just I would prefer to communicate um give it a little bit of time to communicate let it sink in um and even we've had people you know there are people regardless like Jay said regardless of how much you raise your prices the fact that you're raising them it's going to be too expensive and we've had people squabble with us over $5 Jay I think you may understand this the beauty business is very emotional and so I think it's more emotional than a cup of coffee um and so that's another reason why I don't want to do it quickly is because I want to mitigate the the drama if you will well it's also more transparent and that if I raise my prices 5% every picture is different no one's going to necessarily go oh my God they don't know cuz the last one was an 8 by10 and the new one's a 1620 and you're case they know they paid 40 bucks last time and now it's 42 or 50 or whatever it is so you can't hide from it and number two is you get the same customers every single month I might not see a customer for five years exactly yeah and that's the same for us in that we have a lot of repeat customers but every single project is different so every time we're pricing something it's a oneoff and so there's it's very hard to compare so you can raise your prices without anybody even realizing it yes effectively I am confident there are far more people that have priced out of business by not charging enough then those raised them too much and got uncompetitive I am extremely confident of that because I've watched it happen so many times I agree Jay what do you do when you uh raise your prices do you tell anybody anything no every time it's a custom quote look it there's 20 different reasons why they come to your store it could be if there some of them are more important than others location parking does your person know what they're doing there's 20 but the only one you ever hear about is boy that's a lot of money so get over it they're going to complain about the price no matter what you charge trust me I had a customer come in it was whatever $320 and she says to my my sales consultant wow that's a lot more than my other place I've gone really why don't you go there well they're out of business and that's the story of the picture frame business they get beat up by the customers and they they're afraid to charge what they need to charge and they go out of business there were 25,000 frame shops in America 10 years ago now there's 8,000 Karen what's your formula how do you think about uh what you charge do you are you looking at the competition or you just focused on what you need to do to to make a profit it's both we have um we have a number that we have to hit in order to be profitable it's an hourly rate it's the you know it's a Target hourly rate that we have across all of our work and that's based on our salaries so our our number one highest expense in the company is is employee salaries because we're you know they're knowledge workers these are really highly trained professionals they're really expensive and they are asking for raises every week and so that we have to raise our rates in order to stay in business it's very simple um and so so we're looking at that we're looking at what is that number that bottom number that we have to hit in order to be profitable on a project um or in order and then in order to break even there are many projects where we'll give a discount for all kinds of different reasons um but we have to hit that break even number um and then we're looking at what will the market bear and but you know we're not we like to describe ourselves as the Tiffany of what we're doing and I'm totally fine not being the cheapest one in the room in fact if we are then we need to raise our rates so we you know we go in high and we give a lot and they and our clients we have a lot of repeat clients and because of that they know that they're going to get a lot so you get what you pay for is sort of of the age-old truism have you learned any lessens Through The Years Karen have you made mistakes on pricing either by you know losing a job that you think you should have gotten because you asked too much or or or not asking enough yeah that's happened loads of times but I don't consider that a mistake I you know I I feel we we do a really careful job of pricing our projects and so I don't ever feel like it's random or it's you know willy-nilly in any case it's you know we're looking we have we have incredibly comple spreadsheets that we use to come up with pricing and so you know we'll walk some clients through it if they if they really want to see it um but in the end it comes down to trust and the in our reputation I mean as we've been around longer um and have more and more bigger clients and repeat clients they know that it you get what you pay for and so Jay have you made mistakes well I can tell you on the buying side here's an example of my home store Jason home we have a website and I we went to Magento which is a play form and you know you shop around and you hear one place is $300,000 another place is$ 210 another place is $140 and unlike buying a car or a picture frame even or anything you got no there's no tires to kick it's like I don't know they all made proposals they all have offices maybe one has the ping pong table maybe one doesn't what are you how are you supposed to judge this so what do you do well 300 that's a lot of money we got to go with the cheaper one and I've cycled through three of those companies now because there's always something wrong there how does that apply to your thinking about your pricing my pricing is simple I believe in today's market you either need to be great or cheap and the company that's in between is going out of business and I think if you look at all the retailers that going out of business Sears are they great no are they cheap no and the only way to be cheap is if you figured out like Walmart some way of getting your cost down well most companies can't do that so I'm taking the approach in my all of my businesses I want to continue to give great customer service and great products and I need to charge what I need to charge so I don't even look at what the competition's doing anymore because it just doesn't matter what if I go out in the market and I find out that uh people are 15% cheaper than if I drop my prices 10 or 15% I'd be out of business so I'm I'm not going to start well it would matter if you found out that your competition was charging more than you are right yeah absolutely very insightful but I can't I've got good solid people to work here and don't want to run a sweat shop we by definition no health insurance you know everybody's a minimum way I you're saying you don't do that I don't I I don't subscribe to that I don't chase hotel jobs anymore because the art that hangs in the wall it's not really important to them so they find somebody who's going to frame a picture for them for $23 which is why when you go into a lot of hotels the stuff on the wall is falling apart literally and I don't want to be in that business I want to do quality stuff with people that know what they're doing and great service and there's a price to pay for that and luckily I'm in an industry that the customers appreciate that I'm literally 20 times the size of my competition I'm not cheaper and the reason is because the kind of customers that that frame pictures it's only 3 4% of the population the kind of person who does custom picture framing wants something done well that's why they're framing it and then you got the the people out there with the chain stores with the 50% off nonsense which it is complete nonsense there's no such thing as a list price so I position myself as the value proposition of for what we're doing we're giving them a tremendous value which is why I'm doing the volume I'm doing and even with all that being said it's absolutely emotionally difficult to raise prices even today after 41 years it's still an extremely gut-wrenching you're always afraid of oh my God you know am I gonna get too pricey are you feeling that right now Dana yeah I mean for me I you I love what Jay said about you know look I don't I don't have time to look at my competitors right now and and I don't have time to decide I need to look at what the bottom line is for peral Boyd and decide the pricing there in as far as the cost I just changed my PR if you want to call it pricing structure or how I pay my staff um because again Jay's right minimum wage just went up again here in Michigan um January 1 so you know you you have to raise your prices in order to be able to pay your people I don't offer benefits um and that's not unusual in the salon industry um I think most companies that are big in the hair business do but smaller people like myself we don't offer uh benefits so my reasons behind um the my my pricing increase are similar to Jay's but um different and I think uh the other point that he made about being great um I think that's another thing that needs to be communicated we're getting better so here is here the changes that you're going to be seeing or that you've already seen and it's time to raise the price um that's it I I right I've been cheap for too long and I think that has harmed my business I want to do one more segment here um every uh almost every day in our 21 hats Morning Report we're always writing about technology that uh business owners use a new CRM um some change on Facebook for for marketing or something like that and I'd love to just uh take a moment with each of you and ask each of you tell me uh some kind of technology that you you know just couldn't live without right now what are you enjoying and uh some piece of technology that you just can't wait to replace something that you can't stand using whether it's technology that you use personally as uh the person running your business or something that the the business uses uh Karen you're in thech Tech business I I'll start with you oh God I you're going to have to go to the next one I don't have a good answer I have to think about it because it's it's so in my face all the time that it's hard for me to decipher let me think for a minute okay uh I can't go to Jay data go to me go to me ask me please ask me okay Jay how about you I really really enjoy and love my electric garage door opener it would be very hard to do without it um and uh what am I looking to replace um I'm just trying to just keep up enough as you know I blogged for you for years to the New York Times and I'm good at at doing some of the stuff on my apple and I brought a guy in to help teach me how to use more of it but the reality is he'll show me how to do it but I don't use it enough that you like like I can't use an XL Spreadsheet for instance simple right and it probably be good for me to know how to do that I just don't use it enough that if even if you show me how to do it I'll do it for a day or so but like I'm not going to use it for six months and it's just so I've just learned to accept it's okay at the end of the day you know what I got 115 employees I don't needs to know how to use an Excel spreadsheet it's okay you know it might be like uh the week you spent studying uh Insurance you might as someone with an accounting background you might actually enjoy it if I'll tell you why I love the insurance thing I found a website moneychimp.com that's got all these calculators in there so you can say oh if I put that same insurance payment into a bank account at x per I love that stuff so so okay I'll use that as my technology moneychimp.com Dana ours say mind body.com and it it answers both of your questions you know it's it's it's the technology we used to run my business can't live without it can't live with it um can't wait till we um either make something or find something to replace it because I do need something more detailed but there's nothing like being able to log in in an app or log in to your computer and see who how many people we've had today how long they've been in the salon this is the software that it's basically the you know the operating system for your business right yeah that's it it it helps you manage your employees it tells your employees uh what they need to know about uh return customers uh all of that yep everything yep it tells us everything it tells us how many people we can expect on Tuesdays in the month of February between 9:00 a.m. and 9:15 right and so it and it just helps us manage our business in 15-minute increments but it can be more detailed and and sometimes it shuts down and there's a lot of service you know outages and so um can't live with it can't live without it looking forward to the day where we say hey it was great for the years that we were in business with you but now we've made our own platform and do you think that's what you're you're going to do are you going to make your own absolutely as we expand I need something more detailed and if um I choose to franchise or you know even if I just expand with company stores that the technology will be the center for how all of the the salons will run so yeah check-in features through an app um you know being able to manage to the second how our guests are in the salon that would be ideal Dana are you telling us there no software in the market to run a salon that's close to what you need nope we've been looking we've even looked in healthare um the closest we found are restaurants um but even restaurants um we've tried to see if we could go in on the back end and change some things and no it's it's pretty much reservations appointment based everything is appointment based if I can share a little of my experience keep in mind this is the problem I have my framing business is so much bigger than everyone else's that I couldn't you know I I can't find the software to run it properly so I'm still using something from 30 years ago that used to run a wholesale business and I can just tell you from my experience and a lot of other people I already blew my1 to $200,000 I don't know that you understand what it really is going to take to build a software it's expensive yeah whatever number you think's in your head and Karen back me up about maybe 10 times it I I I'm telling you I I Now understand I can't even in my size it wouldn't be it would be hundreds and hundreds of thousands of dollars and I was told years ago don't try to write your own software so unless you're sincerely thinking you're G to get some venture capital and do it I'm not so sure that that's you know going to be viable or you know it's really expensive I've had you know friends say you know just do a prototype somebody out of India to do it for you um the cost is going to be really hard that's why we've looked at a lot of these other indust to see um what we can find um and a friend of mine you know he's still looking for me it's one of those things when you're looking at other places for technology what is it that you can do without so it may not have everything you need but it has some of the things you need Karen this is your area do you uh you have any thoughts yeah you you wantan to don't build software unless you really have to for sure it's it's actually more expensive than Jay said because you got to factor in $500,000 of design work before you build it yeah but you'll get what you want I mean it'll be great and then you can sell it so that was the idea the idea was because it it was a walk-in only type of situation um we've had a grocery store approach me say we'd be interested for example for days like today when the weather is about to change how much business how do we need to staff uh ballparks we had a ballpark um a small one here in Michigan come to say hey if you develop it we're we'd love to buy it for you and other salons so yeah I think it's really I think it's a good idea the the trick is then all of a sudden you're in a completely different Line bus then you're in a product company which is fine or you spin it out into a separate thing but exactly and that's just not where my focus is my focus is really on just growing per boy it's hard enough to build one business at a time I I I've heard exactly Dana I think we just said do $2 million feel good about today's episode I feel good Karen I know you think you're off the hook but you're not okay so mine is um the thing I like the least is texting I'll have to tell you if it could go away that would be great here why is that too intrusive no it's just it's it never goes how you think it should go it's just it's so miscommunication is rampant it just gets overused text is great for a yes or a no and anything else it should be it should be only allowed to have two words it your you know like 20 characters should be the limit in a text and then we'd be safe anyway um the thing I love is personally I love one note that's what I've been writing in it's the Microsoft um product and it's essentially it's a book essentially and you organize it by you can have books of subjects and you can have chapters and then Pages within so it helps me have um train of thought sort of all over the place and then be able to organize it um so I use that a lot um and then in our business the thing that honestly is changed our whole company is slack and a lot of companies use it now but it really is fantastic a lot of people hate it well what do you like about it I don't haven't heard anybody that hates it I love it it's it's really it's it's highly productive it's got a great user experience it's functional um and it's simple and it it's easy to use so it's got all the right ingredients it replaces email in a lot of cases and you create groups for different like for us we have project teams and so a project team has a slack Channel and just the people on that project are connected in that in that channel and so all the instead of a whole series of emails that you have to sort through you just go to the channel and you know you're in that project and so it's that kind of content and then it it and it and it disappears so you don't have to full you don't have to get rid of you don't have to delete any email you don't have to put in a folder or whatever you're doing it's just a conversation and the history of the conversation stays in that channel um so it's it's just it's really it's a different way of thinking in terms of communicating within a company but when we have multiple offices and hundreds of people it's it's really the best most efficient way to do it yeah we use monday.com I love it I used slack uh at Forbes and I did hate it I primarily because we didn't thoroughly adopt it so uh you know I was a member of four or five groups but a lot of people didn't use slack they stayed on email so it it just felt like it compounded the places I needed to go to check every day and it it drove me crazy I felt like that when we first started using it and then um and we push hard on adoption do you outlaw email most people don't use email internally we do kind of I mean that I don't reply to email so that's one way to do it wow interesting yeah most people prefer to not do email it's too laborious you have to look at it you have to open it you have to read it you have to reply slack is way faster and most people in our company particularly M millennials want to move quickly and this allows them to do that Lauren you haven't asked me if I use it I'm a little offended by that Jay do you use slack I got rid of some Slackers over the years but I I hav yeah no I'm I'm like the dog when when it hears a weird sign it turns its head to the side like what are you talking about that's where I'm at right now like huh what slacker so no I'm not going to be adopting that soon I don't think I guarantee you there are people in your business that know what it is and if you ask around you could probably find someone who would say yeah that's a great idea we should do it as soon as we're done here I'm gon to go looking for that person and then I'll probably fire him Karen I wanted to ask did you have you heard of scrier no for writing yeah one note um when I write I use one note and I also use scrier yeah I think you'll like it yeah I'll check it out all right we are out of time here my thanks to Karen Clark Cole Jay goz and Dana White appreciate your joining us today thanks for listening everybody this episode was produced by Jess Thon founder of blank word Productions remember we started the 21 hats podcast to help business owners feel a little less isolated to let them know they aren't the only ones fighting these battles if you got something out of this conversation please help us reach more people tell a friend subscribe and review us wherever you get your podcast follow us on Twitter at 21h hats and let me know if you have a question or a comment or a topic you'd like us to cover my email address is L Feldman 21h hats.com see you next time [Music]