Raise your prices and increase your sales at the same time?

Two part (maybe 3) strategy to learn how to raise your prices and either

a) increase overall profitability of your business or

b) increase number of sales and profitability.

You’ll also learn when to NOT raise prices.

You’ll also learn how reducing prices can be a disaster, and you’ll find out one time when different prices for the same product can be a big advantage for both customer and seller of a product with multiple prices.

Do you have the decision in your business of what to charge for the products or services you sell?

Sometimes I do and sometimes I do not. I don’t put the price on the back of a book published by Wiley, Pelican, or Arcadia.

I do put prices on the books I’ve published through Network 3000 Publishing (my own company).  I decide the prices on courses, programs, public events and my consulting time.

Except for textbooks that sell to university students, book prices are very low and haven’t changed much in 20 years. Meanwhile textbooks are outrageously priced because the demand per student is dramatic. They MUST have the book so a book can easily sell for between 100 and 200 dollars. I own many, many textbooks.  Even I have felt irritation spending 145.00 for a text book.

There are a number of books in my home that sell for between $200 and $1000.

If you have the choice of raising prices of your products and services, pay close attention.

Imagine you have TWO jobs. First, you repair air conditioner and install the systems themselves for your livelihood. You work for yourself. Second you have another small business you are working on, it can be your current business. As you read the article simply write down the implications of each as we progress into the second article.

Regardless of what products or services you provide, you like have made some errors in setting your prices.

There are several factors you must consider in setting your first price. (It’s an experiment. Testing is required in establishing pricing.)

We begin with establishing what the minimum price for your AC work, your product, your service is going to be.

Setting the first minimum price, doesn’t mean going back in time like Back to the Future and recreating the future. It means setting your price for today. There is a best answer but you’ll have to learn what matters to you and to your customers.

In other words, raising a price from 150/hr. to 250/hr. is great, but what did you base that on?

Most people make it up out of thin air. They don’t teach you how to set prices so that all needs are met for your business and the lifestyle that will stem from the business.

And you can’t do that. You have to have a logic for changing pricing.

Sometimes you are selling the right product and the price is right but you are using a failed process thus getting the wrong results. The missing factor could be something as simple and ridiculous as cutting your hair. (Your appearance is absolutely part of a process. So is the smell of cigarettes as you walk in the door.)

It can include something as simple as wearing the right kind of slippers as an AC repair guy or dressing just a little better than expected.

There are literally hundreds of A-Z variables that have nothing to do with wholesale prices that go into prices you must test.

Our very first price in raising prices, is establishing a MINIMUM.

Sales people always think raising prices and better selling is about the technique, or the result,  but quite often the missing factors are peripheral to the end result.

Let’s say your best friend plows driveways clear in the winter in Minnesota. Six years ago Chad was my snow plow guy from the time I moved into my house in 2010.

Chad gave me a completely rational explanation of pricing my 150′ driveway.

“Dr. Hogan you have a straight and wide driveway. It’s much easier than plowing Tracy or Michelle’s driveways. I have space to maneuver and I can be in and out of your place in 15 minutes. And that’s exactly how long it takes me to clear their driveways. The good news is that there is no drive between people’s homes. You all live right here in this massive cul de sac.”

“Wow I had no idea. So how do you charge?”

“You pay me today. $250. Victoria has an average of 8 snowfalls per year that are more than 2” and that’s the minimum I plow. I need to get $100 per hour for my time. I live in Chanhassen and my bills aren’t cheap. “It takes me a few minutes to get from up the street to Tracy’s. I do her place first. She’s done in 15 minutes. Then the two of you.”

He went on. I’m actually fascinated.

“I consider the three of you combined as one hour which gives me a little wiggle room. to get to the other side of town. I also add in the cost of gas to the truck. So you are paying me $30 per visit. I earn $100 an hour because I do put in that wiggle room to get to my next driveway.”

I asked what happens if it snows those 2+” 10 times in a season. It IS possible. I’ve seen it and so has he.

“Then I eat the extra  visits. But the two years before you moved here we had 7 and 5 dates and in those years I win. I save the extra money for the years that will be over 8 visits.”

Chad did my driveway for 7 years and then he moved to the other side of the Twin Cities.

Starting in 2017 I had to hire other guys to come plow. There were no contracts. Everyone charged differently. Each would tell me that it was because my driveway was so long. But I already knew that it was easier to plow my driveway, and in 15 minutes because of that fact.

The first guy was $150 per visit. The next year I had a guy do it for $125. I kept him a couple years. Instead of plowing costing $250 per season it was now costing about $1200!

You see these guys didn’t think about how easy the driveway was for THEM to do, they thought of HOW MUCH PAIN IT WAS FOR ME TO DO!  Even with a good snowblower it was two hours and always bitter cold and windy after the bigger storms went through. Today? I pay $134 per visit. This year we had 14 visits and I had $2000+ in driveway plowing.  And the same guy does my lawn spring, summer and fall.

Chad was unusual in that he wanted to earn $100 per hour. Since then it’s never been about “per hour” with any other plow guy, but the value of the pain I experience if I have to do it. Jason (new guy) does a decent job for $134 per visit.

The price you pay or receive is based upon which variables you plug into the equation.

Legend Point: Notice that the price of the competitors in your area is not factored in here. It’s possible it may be necessary to take that into consideration if you “bid for jobs” (corporate, commercial, insurance repairs) but as a rule, the price your competition is charging is simply not that important until it somehow impacts your business in a negative fashion, and you are absolutely certain it is the sole factor causing your business to be changing. You do not change solely because the competition changes. You always want to stand out as being excellent, the leader, high quality work, the person people trust, intelligent, caring about the people you serve. If that doesn’t work think of it this way:

With that in mind let’s look at 10 factors that set our first new price for your services/products.

Back to our Air Conditioning Repair Guy

1. How much time does it take to diagnose the problem and then fix it.
2. How much does refrigerant cost? What about hoses, pipes, fans?
3. How difficult will it be to fix venting in the house, if necessary?
4. How much did it cost to learn the skills necessary to diagnose and repair?
5. How much time does it take to get to your client’s house and how much time does it take to fix similar air conditioning issues you’ve worked on in the past?
6. You must then determine if you are giving a quote or a price when you arrive. A quote or estimate generally means the person with the hot house will compare that quote with someone else’s quote. In this case the customer believes that the air conditioner works or it doesn’t. He just wants the switch turned on to work. In these cases the hot house needs to be cooled.
7. What guarantee is offered to the customer? Will you return at no cost in 30 days if it isn’t working? six months? One year. In each case? What if you offer NO GUARANTEE?
8. Will customers trust YOU with absolute certainty when you are in their HOME, more than what they perceive the average repairman? Is their home safe when they are in your home? What about after you leave? What is the DOLLAR VALUE of your TRUST with your client vs. your competition. Trust is worth a great deal in monetary terms and long term relationship with client.
9. Do you want to charge by the result or by your time and materials cost?
10. What are the costs of running your business per week, month, year. (taxes, insurances, book keeping, assistant, bills)  How do you want to factor these costs into the expense side of your business vs. the revenue side and where does that leave you? Income-Expenses should be where you want to be with enough to grow your long term personal savings on.

Establishing prices in the first place is not simple because there is no formula for our air conditioner repair person.

In this case you could charge by the hour with a minimum trip charge. Hourly work is no easy thing calculate in something as varied as the different problems that need to be fixed in the AC repair biz. Perhaps your first hour (and job minimum) is $190 and each hour thereafter is $140. But what if you are only going to see one or two clients each day? Will that structure pay your bills? If you are going to see 3 people per day, would you change it? How and why?

What is your cost of marketing and advertising?

We will go back and forth between establishing prices and raising them today. Its already become obvious that you are experimenting at both stages and my experience is that most people haven’t experimented. They’ve guessed.

Let’s go through why raising prices can be a good idea or a disaster based on my work with numerous businesses and also market research.

You know I collect Elvis Presley owned items. Over the years I’ve bought and sold jewelry he wore, items he signed.

How would you price something Elvis (or perhaps items once owned by a famous person in history like Ben Franklin) wore. A necklace, a ring, watches, bracelets? How might those items be different from shirts, pants, shoes owned by the man? What about something he wore on stage, vs. worn in a movie vs. worn at home?! How about his Bible? Guns? The book he was reading the night he died? What about the scarves he tossed to fans in the audience? They all carry, very different prices.

There is no formula per se.  But there are ingredients that lead to price points.

One thing is certain. Art and collectibles are typically one of a kind. When you have something that is one of a kind, it MIGHT be significantly valuable.

How specifically might YOU be one of a kind for clients? The answer to this question is pretty  much the answer, “who are you?”

(Shouldn’t all air conditioning repair folks charge the exact same price? After all it’s the exact same PROBLEM you are all solving?!)

While you ponder that let’s go back to your other business. In this case for me it’s a collectible hobby we will call it.

In a situation where you have to PROVE that these items were Elvis’s you have a bonus challenge. Fraud in every business is common. Fraud in collectibles is no different. When buyers sense fraud, markets can go down in general quickly. When the subject of your collecting is in the news, those items, things, can go up in value quite quickly.

Collectors of almost anything experience both dramatic up and downturns in prices.

Low supply and high demand MIGHT = higher prices for your service. There is ONE YOU. YOU ARE AMAZING. YOU ARE BETTER THAN VIRTUALLY ANYONE. People rely on you for your expertise, your direction, your decisions. They trust you. You charge accordingly.

Setting your first price is an experiment.

Remember the last time you sold a home? You put the price on the home, say $500,000. Imagine you paid $400,000. You think you are going to earn $100,000 on the sale of the house!

But of course that is wrong.

You pay your realtor 6% in the U.S.

You pay for some new carpet, paint and maybe replace some things in or outside of the house. This can cost from 1-20%, but let’s say it’s 5%.

You also will be paying closing costs for the sale of the house which again can be all over the board, but let’s just say 3%.

And you have to pay to move. That’s about 1%. It just depends on how much there will be to move and how far the distance is and the difficulty of getting all of that stuff from here to there.

In our scenario you have 15% cost of the $500,000 to sell your house and move. That comes to $75,000, leaving you with 100 – 75 or $25,000.  Is $25,000 going to be enough to get you into a new house? Not likely. But you might have savings and it might not be an issue. Let’s pretend that is the case.

So you cash out with $25,000. You’ve set your price and that’s a good guess in this situation.

Now we shift to raising your prices, not simply setting them in the first place at the beginning of “the experiment.”

The way you calibrate your price after a few months is first, “is my work paying for my life and business expenses?”

If so you might be moving in the right direction. But “breaking even” in life is a nice way of saying “paycheck to paycheck.” If you get sick or hurt your business isn’t paying you anything.

Someone will say, “what’s the competition charging?” My response is generally “who cares?”  If you are “breaking even,” then SOMETHING must change.

You can improve your advertising and marketing, speed of work, increase your prices, improve the quality to encourage word of mouth, and save the excess.

Don’t worry…

I’ll show you what the latest research is later in the article. Before we get there we need some foundation. on raising prices.

Let’s look at a real world example of whether you SHOULD raise your prices or not.

Each week I receive a few books from other authors, in the mail, that people want me to review for you in Coffee with Kevin Hogan. They know if I like it, I’ll let it be known with an endorsement of some kind.  A lot of people will go buy it if the endorsement is wisely used.

If I don’t like it, I almost certainly won’t review it because as a rule, I don’t do negative reviews. So they risk $20 and send me a copy. They have little downside and potentially big upside. That’s just good promotional thinking.

You aren’t an author. So always consider how something correlates or mirrors the projects you do.

As a consultant, dissemenator of information and author you develop skills that create a strong interest for many and a RAVENOUS interest by others. Some people literally have told me, “I just want to wire my brain to yours so I can know what you know about x.”

Instead of something that would screw up my hair, promoters will usually offer VIP time with Kevin Hogan. In other words, Kevin talks at the company or the association or the public event and then the people who want some seriously deep drilling will want to see you in a much smaller group setting. Perhaps lunch, dinner, after hours, or in a very small group meeting. These experiences carry very high price tags because the value of the experience, the value of what is shared, or both is very high for this specific group of people.

Sometimes people don’t need a lower price. Sometimes they simply want more of your time for specialized advice about their air conditioner, their business, their life. You can give this service to the highest status people in the community or office or government.  And so can the air conditioner repair folks.

As an Air Conditioning Repair Human, you can give your service to someone well known in the community in exchange for a yelp review or an endorsement you can use in your advertising. You could also give a significant discount that would leave you with a balance to cover your materials that day.

Back to the budding author:

But….what happens when they tell their audience, “We just sent a review copy to Dr. Kevin Hogan for his perusal…His opinion matters.”

Is that going to help sell the book?

Would the bibliophiles be happy to hear that Kevin got the book for free and that they have to pay $20?

And what if I didn’t actually REVIEW the book?

How would YOU feel?

Does it boost your confidence when they tell you they sent a copy of their new book to me?

Does it make you feel you got shorted?

Well the thing is that we know we are lousy predictors of our or emotions and feelings, or those of others, so I’ll show you what the latest research says what you SHOULD and SHOULD NOT do when promoting your products and services…

Researchers asked study participants to choose between drills and other products with different promotions.

• For example, guess how female Victoria’s Secret customers would react if they found out that male customers got better deals on the same items. 
• How would plus-sized women react to a dress that is sold for less in smaller sizes? 

The easiest way to remember this new rule of persuasion is to think of the girl talking on the cell phone while you have been ostracized from her mind, then texts someone else back and forth, and you feel excluded from her life.

According to research from Duke University’s Fuqua School of Business, in these two situations, the excluded consumers would be turned off and would be less likely to make a purchase.

• But how would competitive (perhaps amateur) swimmers react to a product claimed to improve speed if they knew the product is given away free to Olympic swimmers? 
• How would vodka consumers react to super premium Belvedere vodka if the company offered free tastings exclusively for bartenders? 

In these examples, the consumer ends up wanting the product more, said Alison K. C. Lo, a recent doctoral graduate at the Fuqua School of Business. She and marketing professors John Lynch and Richard Staelin explain why in the article “How to Attract Customers by Giving Them the Short End of the Stick,” published in the Journal of Marketing Research.

Legend Point: Listen to Dr. Lo. “As consumers, we sometimes buy things when we feel clueless in telling good-quality products from bad but we think more savvy consumers can tell the good stuff simply by inspecting the merchandise,” Lo said.

That….is genius.

“In such cases, naive consumers are attracted to a product with a freebie that is not available to them but is offered to a more savvy group of buyers, like bartenders or Olympic swimmers. These savvy buyers presumably would turn up their noses at low-quality merchandise, so the naive consumers reason that products promoted to experts must be good.

“On the other hand, if we are excluded from a deal and the group benefiting is not more savvy or we are more certain of the product’s quality, we are put off,” she explained. “We buy less — like the woman who sees that Victoria’s Secret is offering a better deal to men than to women.”

For my nickels, that means you should get your product to the best in the business. You sell footballs or jerseys? Send a few of yours to Jalen Hurts of Philadelphia or Patrick Mahomes of K.C. 

One of two things will happen:

a) If they say they like your stuff, especially after you tell people you sent your jerseys to them, you really win.

b) They decide not to endorse the Jersey’s but you can still let it be known that you sent your Jersey’s to Hurts, Mahomes, etc.

In either case you capture a halo effect for your product. Word of warning: Be wise in how you utilize your gift giving. You can’t put a picture of Mahomes on your Instagram without his permission. But you can tell the story. Never imply endorsement when the person didn’t endorse. (That should be simple logic but …apparently it isn’t in 2023)

Back to the lingerie experiment:

Meanwhile Men aren’t smarter than women when buying lingerie and a lot of women buy lingerie for how it makes them, and not necessarily their guys, feel. Thus they get irritated with the promotional efforts of giving the guys a discount.

What happened in the DRILL experiment I briefly mentioned above?

The drill was part of a series of experiments. Dr. Lo and her colleagues, student volunteers in Duke’s master of business administration program were asked to choose which of two cordless drills they would prefer to receive as a gift.

The researchers tested the effects of varied promotions by pairing the drills with either a $15 Nordstrom gift card or the book “Graphic Guide to Frame Construction: Details for Builders and Designers.”

The study participants overwhelmingly preferred the gift card, but they thought the book would be more appealing to people with expertise in construction and carpentry.

Participants then were asked to guess the prices of the drills, and they gave a higher price to whichever drill was paired with the book compared with the one paired with the gift card.

“This is important because even though the book was not as valuable as the gift card to our participants, they realized the book would be valuable to someone who might know a good drill when he or she sees one,” Lynch said. “They reasoned that only a manufacturer of a high-quality drill could lure such an expert to buy.”

The research team found similar results in experiments focusing on other products, including camcorders and headphones.

The researchers say the findings challenge some long-held notions regarding consumer reaction to targeted promotions. “Our findings apply to a specific set of circumstances where the customer is not able to judge the quality of a product, but believes that other consumers are expert in judging that product,” Staelin said.

“But a lot of marketers sell in exactly those kinds of categories, so our findings can be used to sell products from wine to jewelry to home electronics to financial services.”

The above research and the conclusion to Part One, brings us to the following 8 clear points.

1. I like higher prices than lower prices for most things. Bargain hunters are great, but do you want to be known as a bargain? Higher prices help you focus on a different kind of clientele than bottom of the barrel prices. Bargain hunters are great but do YOU want to be KNOWN AS A BARGAIN? If it’s your first year in business, you might be very wise to be the bargain and aggressive in getting those testimonials and yelp (or yelp like) reviews. But once you have yourself established, after say one year, you can raise your prices.
2. In the case of our air conditioning repair human, if the going rate in an area is 100 – 250 for that first hour, or simply per hour, then why not establish your price near the top of the range. If you have the credentials (client reviews, testimonials) then by all means go for the higher part of the range and let people know this is why. The community/town/city they live in loves you. You are busy. You don’t discount but if someone is tight on cash they can pay your labor fee and you can give them parts for cost plus the time it takes to physically go to the supplier and get them. Position yourself as the most prestigious because you do the work for the city or a corporation or for the beautiful homes in this part of town.
3. You can maintain your raised price for as long as you fulfill your TRUST to your clients and quality of work and guarantees to your clients.
4. “You get what you pay for.”  In an era where much of what people buy is stolen (everything from software to movies, to books to you name it) this statement still is valid with YOU. Be certain you prove yourself every time you work with a client. Your “expensive price” will be perceived as a “little more expensive but worth every penny.”
5. After 3 months evaluate your revenue and expenses. Are you doing better? You should be. If your workload has dramatically dropped then you might have priced yourself to high. Sometimes of course it’s just winter time and air conditioners don’t start breaking  down until late spring. Be sure to compare apples to apples.
6. A higher price often leads to a better result for the client. Paine College (very inexpensive) graduates 9% of their students. The University of Minnesota (inexpensive undergrad, pretty expensive for grad students)? 74%  Harvard? 97%.  A high graduation rate is not telling of better education but it certainly is more expensive and people perceive the value to be very high. Where people perceive value to be low you can guess that the school might struggle in creating graduates. Similarly if your air conditioner repairs are more expensive people might actually put less wear and tear on them causing them to have fewer problems over the years.
7. The Guarantee: Things do break down when you don’t expect it. They do have random negative occurrences. If your price structure is high enough it’s a lot easier to go tweak the homes air conditioning system at no further cost to the customer because you have built in guarantees by having a higher price. The guy who came out for half of your fee probably doesn’t have the ability to make that happen. Your reputation grows when you return to make a repair on something you previously repaired…and then don’t have to charge them if it was related to the original problem.
8. Competing on price is great. Yours should be higher and you should be able to explain why. There IS a peak price that you can get. You don’t need to be the most expensive. But move in that direction and it’s unlikely you’ll regret it.

And now you know how to make it happen too!

It’s a lot to think about and now you should write down your questions so you’ll be prepared to find the answers in this article and Part Two.

You heard it here first.

Part Two, next week!