How do you deterimine your price increases?

[PrimaDonna]

We raise our prices every year, effective January 1.

Wondering who else out there does a yearly increase? If you don't, why not?

How do you determine how much you will raise your prices? (% increase of current price, flat dollar amount each year).

Do you raise your prices across the board or only for certain services?

Working on ours now and am curious as to how others do it....

 

[PrimaDonna]

Sorry...meant to post that in Let's Talk Business, but I don't know how to move it there now.

 

[hydracat]

I don't do it automatically but when I do I just tell them I had to charge a few more bucks this time to keep up with the cost of running a business.

 

[Desk Jockey]

No we don't raise our rate every year, I wish we could. Some of the services we provide are some what dictated by a third party "price guide" While its supposed to be a guide, it might as well be chiseled in stone for some adjusters.

Non restoration services we change more frequently, but we move slow and take too long to analyze before changing anything. When considering a rate increase we start by looking at what margin we are making on that service and decide if its enough for the effort put forth.

We raised our rug cleaning prices in the spring and you'd have thought we stuck them up at gun point. It has not gone over smoothly but it needed to be done. I think working the numbers helps us validate the necessity of the increase. Where if we just wing it and say "it should be more". Its harder to stand your ground when challenged.

As I mentioned in a previous post next month everything will go up some even if just slightly. Those areas that we are not getting the return we we think we should will go up more than other services where only a cost of sale has increased.

It all works hand in hand, I want to give our staff raises this spring and to do so we need to raise rates.

 

[Shane Deubell]

Only as a last resort, not until our overhead is completely maxed out and nothing left to do to increase production.

Why? because i have no interest in cleaning.
Which is exactly what you will be doing if your prices are too high.

It narrows down too much the pool of prospects, i like options in life, flexibility.

 

[J Scott W]

We tracked our costs and only raised our prices if our costs were rising. For the first several years in business, I did not raise prices until forced to. But found that small annual increase were better received than a large increase after several years.

I choose not to raise prices at the first of the year since winter was our slow season. Raised prices early March most years.

If ever questioned about price increase from a repeat customer, we would show them what they paid previously and compare to inflation rate. If the increase was greater than inflation rate, we cut the price back to match inflation rate. They seemed to understand the need to keep up with inflation.

 

[Desk Jockey]

not until our overhead is completely maxed out and nothing left to do to increase production.

We are constantly looking at production numbers and job costing projects. Sometimes a hiccup here or there can hurt you if when you bid a job too tight.

I love when all goes smooth and we all win. I hate, hate, hate, losing.
I hate losing more than I love winning.

 

[Steve Toburen]

How do you determine how much you will raise your prices?

For us it is when Papa Nick wants a new Cadillac and the % increase at Jon-Don is based how much Cadillac's cost. BTW, PRICE ALERT! I understand Nick was down at the dealer last weekend! Better buy before the end of the year!

OK, Meg, good questions that deserve serious answers. Re: for precise answers on when to raise prices I'd refer you back to Chuck's session on Job Costing and his 5-M's worksheets. But given my somewhat "swashbuckling approach" to financials (which I an NOT officially recommending) I would remind you of my two favorite "When to raise my prices?" quotations:

1. "There is no virtue in poverty."

2. "All things being equal it is better to have LOTS of money instead of having NO money."

So don't tell Chuck, Meg, but here was my totally unscientific approach to setting my residential pricing. (We did serious number crunching on our commercial accounts.) When the occasional home owner would say, "Oh, is that all?" (OUCH) I knew it was time to bump those prices up! On the other hand, when I heard this a lot: "Whoa. You guys are a lot more than the last cleaner I used but what the heck, my neighbor says you are expensive and worth every cent! When can you clean 'em?" BINGO! I called this my "PoP" (Point of Pain) pricing model.

Steve

PS OK, so HOW to raise your residential prices? Here is a little cut-and-paste from an email I sent to a far-too-timid Arkansas carpet cleaner:

So here are Steve Toburen’s patented steps on how to raise your prices:

1. Just do it. (Gradually.) The vast majority of your customers will never notice a 5%-10% price bump every year.

2. Remember, to you this increase is a big thing. But sorry to break it to you, Debating, but your carpet cleaning services are a very small blip on the customer’s radar. (This is a good thing for you.) Remember you are not your customer! (Consider tattooing this saying on the palm of your hand.)

3. So when a previous customer calls in to schedule do NOT say you have raised your prices. Instead, review pull their work order, review what they want done and then hopefully without your voice trembling say, “The price for everything I have on your work order this time will be 328.40.” You will be amazed how many will just say, “OK”. (I do feel it is only honest and ethical to not “surprise” a customer with the new price after you have arrived at their home.)

4. On the few that say, “Wow, that is a lot more than I paid last year” just smoothly reply, “Yes, Mrs. Jones, on January 1st of this year we had to institute an 8% price increase. If we need to I can look at how to lower your price by not cleaning some of the less trafficked areas …” Almost always people will just say to go ahead and come on out.

5. The key here is to make your “re-booking conversation” smooth, routine and NEVER justify having to raise your prices. On the other hand if you hit serious price resistance always offer to cut the scope of the work to bring it down to last year’s levels. You don’t want to lose this customer over 8%! But on the other hand don’t let your fear of a few, keep you from raising prices on all your clients!

You can read my whole exchange with the fellow HERE.

 

[Lee Stockwell]

On a related note, how many are rolling back prices due to the huge drop in fuel costs?

 

[dealtimeman]

I know lee, now I had to remove all of our ridiculous fuel surcharges from our bills and I am not happy. Fuel prices need to go back up.

 

[Desk Jockey]

We are.

We are cutting big fat checks and giving it back to our clients.

On the other end I've also not seen a discount from any of the other service providers that we use. Those dirty rotten.....oh wait. Never mind.

 

[billyeadon]

Well after the Epistle from St. Steve, not much left to say. Keep this in mind; most of our clients have their carpet cleaned every 1-3 years if we are lucky. People know how much things cost that they buy frequently like milk, gasoline (great post Lee) cigarettes etc. They have no clue what they paid for cleaning 2-3 years. I agree with Steve raise little bits at a time.

But thinking about Lee' post I think this may be a great marketing opportunity. You could tell previous customers that due to gas prices rolling back 5 years you are going to only charge them what they paid 5 years ago but only for January and February. Of course that may still be the same price. But it makes for an interesting headline.

 

[Desk Jockey]

only charge them what they paid 5 years ago but only for January and February

Spoken like a true salesman.

 

[hogjowl]

I have been thinking about this of late. I have not gone up on my prices in like 5 years and noticed that I needed to go up. So, I went up 5 cents a s.f. I had some major bitching from some of my long time customers. So, I have decided to go up 1 cent every year from now on. Don't ask me how I determined it to be 1 cent.

I just picked that number out of a hat ...

 

[Lee Stockwell]

If a nickel causes major blowback....it's probably NOT the nickel.

 

[Desk Jockey]

I have been thinking about this of late. I have not gone up on my prices in like 5 years and noticed that I needed to go up. So, I went up 5 cents a s.f. I had some major bitching from some of my long time customers. So, I have decided to go up 1 cent every year from now on. Don't ask me how I determined it to be 1 cent.

I just picked that number out of a hat ...

Took too big a leap, that penny or two is easier to swallow if noticed at all.

 

[hogjowl]

Taco:

It was only 2 or 3 customers, but all of them were old ladies that have been with me a really long time. They all paid the money, but they had to complain a bit. That got me to thinking that all of that could have been avoided if I'd done it over a period of time.

 

[amygeorge]

I went up YESTERDAY. Planned on waiting until Jan. 1st, but we cleaned 2,600 ft for a customer that we used to clean 2x a year, but now only annually. So, I went up .02. She better not complain, her ranch is for sale and they’re asking $750,000,000.00 for it. I really don’t feel bad, she had a $200 gift certificate she purchased for $100 at a boys and girls club fundraiser. I was shocked she even used it, thought she might give it away or even give it back to be auctioned off again.

 

[dgardner]

It was only 2 or 3 customers, but all of them were old ladies that have been with me a really long time. They all paid the money, but they had to complain a bit. That got me to thinking that all of that could have been avoided if I'd done it over a period of time.

If absolutely no one complains you haven't raised your price enough..... IMO

 

[GeneMiller]

I have raised my prices in the past because of gas increases but I never tell the customer the reason. It comes back to bite you. I just tell them I'm giving myself a raise this year. They never seem to care, they do like me after all.

Gene

 

[Art Kelley]

She better not complain, her ranch is for sale and they’re asking $750,000,000.00 for it.

Dang. What is it, half of Texas?

 

[Shane Deubell]

On a related note, how many are rolling back prices due to the huge drop in fuel costs?

Putting all those "savings" in the bank for the inevitable downturn thats coming next.

 

[steve_64]

raised my prices when my customers told me stanley steemer raised theirs.
got pre approval from all my apartment complexes to raise prices also at the beginning of the year. first raise in base price in 7 years.

 

[Papa John]

What I learned from the Wal-Mart documentary is that we owe it to our customers and ourselves is to do everything possible to increase efficiency and cut out waste before raising prices-- but to do it without compromising quality within your niche. (ie different quality for different levels of service-- such as Motel 6 vs The Ritz)

I believe high employee turn over for our type of business is very wasteful and risky. That's why I pay well and my people have been with me 4, 8 n 12 years.

Rather then "increase" my prices this year I added a 4% health insurance fee so that I could give my techs one of the best health insurance packages I could.

I only raised prices because we were booking 3 weeks out-- possible sign that your prices are too low or you need to increase capacity. Increase capacity costs money- raising prices might only cost a few "cheap skates".

 

[ruff]

We tracked our costs and only raised our prices if our costs were rising. For the first several years in business, I did not raise prices until forced to. But found that small annual increase were better received than a large increase after several years.

I choose not to raise prices at the first of the year since winter was our slow season. Raised prices early March most years.

If ever questioned about price increase from a repeat customer, we would show them what they paid previously and compare to inflation rate. If the increase was greater than inflation rate, we cut the price back to match inflation rate. They seemed to understand the need to keep up with inflation.

Totally agree with Scott.
For me, the first time I do the job it takes me longer. By the third time I reach my cruising speed.
So, in a sense I do get a raise, as I make quite a bit more money per hour the second time and even more the third time. I know the place and I am more efficient.

None the less, I do raise it in small increments on a regular basis. Learned from experience (other business) where I did not raise for a very long time. Every one complained, none remembered that I have not raised it for ever.

So now I make sure that there's a small raise on a regular basis. I show them the last invoice, smile and say: " This time it's gonna be $19.00 (or whatever it is) more, I hope this is not gonna send you to the poor house."

Most smile and say: "We think we can handle it."

And that's it.

 

[Desk Jockey]

For me, the first time I do the job it takes me longer. By the third time I reach my cruising speed

I have a plan for you Ofer, we can work as a team together.

I'll move out to the bay area and I will clean the first two times for your clients, since you don't do as well with those first couple of cleanings. You can follow up and catch the third cleaning where the real money is made!


Dementia not quite ready for that?

It's ok, your long lost brother can wait it out!

 

[ruff]

Ola.

 

[PrimaDonna]

Lots of great responses and input. Thanks everyone. It's very interesting to see everyone's different "scientific method" for raising prices.

 

[Shane Deubell]

Lots of great responses and input. Thanks everyone. It's very interesting to see everyone's different "scientific method" for raising prices.

I have a simple spreadsheet tool i use to look at if i raise prices and lose jobs at what point does it hurt total revenue.
You are welcome to it.

 

[PrimaDonna]

Thanks, Shane. I'd be interested in taking a peek. Can you post here for all to see?

I wasn't looking for ideas/help as we aren't new to doing this. Was just curious to see how others did it and thought it would be an interesting topic....and it hs proven to be (at least for me).