Next Level Pros - #99: How to increase your profits with this one strategy tweak

Episode Date: May 10, 2024

Welcome to a new episode of The Founder Podcast. In today’s episode, we discuss the strategy behind pricing your offerings. We take a deep dive into why positioning yourself as a premium option can enhance your brand's perceived value and boost your bottom line. We explore strategic pricing insights, debunk the myths around being the cheapest, and share actionable tips to help you price confidently. Highlights: "Every dollar more that you charge is a step closer to not just profitability but sustainability and quality in your business." "Being the cheapest means cutting corners, but charging more allows you to invest back into your products and services, enhancing overall customer satisfaction." "Price your product not just for the market, but for the quality, longevity, and experience it offers. That's the true value." Timestamps: 00:00 - The Pitfalls of Underpricing 00:43 - Setting the Stage in Pricing 05:00 - The Luxury Margin 06:17 - Comparative Economics: Louie Vuitton vs. Marshalls 08:20 - Small Price Increase, Big Impact 09:10 -The Real Cost of Pricing Too Low 10:00 - How a 10% Price Increase Translates to 33% More Profit 12:45 - Educating Customers on Value 15:00 - Avoiding Apple-to-Apple Comparisons 16:55 - Are You Undercharging? Looking to scale your business? Want to learn directly from the same team that helped me sell my last business for 9 figures? Click this link below to check out how you can work with us. https://nextlevelhomepros.com/grow-home-service-vsl Join my community - Founder Acceleration ⁠https://www.founderacceleration.com ⁠ Apply for our next Mastermind:h⁠ttps://www.thefoundermastermind.com⁠Golf with Chris h⁠ttps://www.golfwithchris.com⁠ Watch my latest PodcastApple- ⁠https://podcasts.apple.com/us/podcast/the-founder-podcast/id1687030281S⁠Spotify- ⁠https://open.spotify.com/show/1e0cL2vI1JAtQrojSOA7D2⁠YouTube - @thefounderspodcast

Are you tired of being underbid by your competition? Does it ever feel like the only way to sell more of your product or service is to lower your price? Where does this race to the bottom ever stop and how do you maintain profitability? On this episode, I dive into one of my most controversial topics. How do I set up my pricing? Expect to learn why you should be one of the most expensive offers in the marketplace, how $1 more to you means so much more than $1 extra from the customer, and how you can create an offer that produces so much value that it creates a true apple to oranges comparison.

All this and more on this episode of the Founder Podcast. All right, so now we are diving into probably my favorite aspect of running business, the price, how we are positioned in the marketplace. In fact, when I work with business owners, this is almost always the first thing that I address because most people get this wrong. And it's really understanding like, what should I be charging to my end user? We've all been conditioned that the cheaper, it's easier to sell, easier to offer to our end user. I want to give people the best product at the best price, which typically ends up being that I am going to provide really good service at super cheap,

which means the only way I can get to really good service is I have to pay really good to the employees, really good product or whatnot. And if I'm charging the cheapest, it means a shrinking of your margins or ultimately the amount of money that you are taking home. This was one of the first mistakes that I made as a business owner at the ripe age of 24 when I launched my first home security business. We wanted to be the cheapest price to the customer. Everybody at that point was charging between 44 and 49.99 a month. We wanted to come in, undercut the rest of the market at $42.99 a month. And then everybody was paying their sales reps $400 in install. We wanted to up it and pay more. So we were paying more, charging less, what ultimately really led to the demise of our business. Now there's a place in the market for

that. And so the really the question is, is like, where should my placement be in the market? What price should I charge? Ultimately, if you want to play the cheapest route, you have to have a dedication to efficiency and be willing to cut certain corners. When you are the cheapest in the market, your customer has to know what they're getting, that it's not going to be the prime time. And I'll give you a perfect example.

Walmart is a perfect example of, they're going to be the prime time. And I'll give you a perfect example. Walmart is a perfect example of they're going to do massive amounts of volume, razor thin margins, and you know what you're going to get with them, right? Like I know when I walk into Walmart, I'm going to get butt cracks, homeless people, I'm going to get poor service, but I know I'm going to get the cheapest, which is why I'm willing to look past all of those things, because I'm really just there to get the cheapest banana, the cheapest box of cereal, the cheapest lettuce, the cheapest t-shirt, shoes, so on and so forth. The reality is, is most of your customers do not want the cheapest. They may tell you that they want the

cheapest, but that is not the experience. They do not want the Walmart experience in getting their new roof put on or their solar or their windows or whatever it may be that you are offering to them. What they really want is something that is dependable, something that is going to be long lasting, that is going to transform, that is going to impress their friends, their family. That is the ultimate where you want to go and solve in the marketplace. So if you're not going to be the cheapest, you better not be in the middle because the middle, people are essentially getting screwed because they're trying to provide the best service, but they're really missing out on that additional margin, which ultimately allows you to serve your customer better,

which is the highest price in the market. So for me, my philosophy is I want to be as close to the highest price as possible because that allows me to serve my customer better product, better service, pay my employees more. Remember, you have two main customers. Number one is your internal employees, those that you're going to take care of on a regular basis. And two is the end user that your employees are going to take care of. So if you want to be able to pay your people better and to provide a better product or service, you have to position yourself in a way that is going to allow you to charge the most in the marketplace. And let's go to another type of example, Louis Vuitton. Louis Vuitton provides a great product, great service. You go into their

stores. I don't know if you've ever been in one, maybe not, but they do their product 10 to 20% better, right? They use a little bit better material. They pay their people a little bit more and so on and so forth. But just adding that 10 to 20% better experience, it allows them to charge two, 15, 30 times. It's funny. I was looking at a shaving kit the other day. The shaving kit from Louis Vuitton that my friend has was $500. And then you have my shaving kit that was from Marshalls, which was $20. The cost difference to get those made might have been 20%, 30% more for the Louis Vuitton, but it allowed them to charge 25 times more for the actual product. Think about that. 20% to 30% more in cost, in service, in experience allows for 25 times, 25 multiplied by the amount

of revenue. That is mind boggling. Not only does it allow them to do that and make huge margins, but it allows them to focus on who their core audiences are. And so at the end of the day, in order to sell, say for example, in this perfect example, so actually let's go over to the iPad here. Hey, Founder Nation. First off, I just wanted to say thank you for being a loyal listener and follower of this show. One thing you'll notice is that I haven't sold out to any advertisers or marketing companies. I've literally had offers of thousands of dollars per episode to push product, but I've kept it clear of that. Two ways that you can help me keep this sponsorship free. One, like, comment, subscribe, leave a review, and share this with

your friends and family. My mission is to change the world through entrepreneurship, and I need more people hearing the message. Two, if you are in the home improvement space, roofing, HVAC, flooring, windows, landscaping, etc., I have a free gift for you. I run a worldwide group of home improvement professionals where we meet together three times a week and work off a framework that helps these businesses scale 300 to 500%. In fact, this episode comes right from our 140 plus video course that we use to structure

our sessions. My free gift to you is a behind the scenes look into one of our weekly calls that we dive deep into best practices with marketing, sales, operations, finance, strategy, and everything that you need to scale your business. Literally the same exact strategies that I use to build and sell. Literally the same exact strategies that I use to build and sell two different nine-figure home improvement businesses. Head on over to nextlevelownpros.com to get your free gift and see what this group is all about. Or you can just click on the link below. Now it's back to the show. So let's say you have Louis Vuitton. This thing is wigging out here. So say you have Louis Vuitton and you

have the Marshall's bag. Okay. So the Marshall's bag is priced at $20 and the Louis Vuitton is priced at $500. Let's say the Marshall's bag costs about $15 to make. That means they have a gross profit margin of $5. Gross profit means that your equipment cost, your cost of goods sold, everything to make it was $15. You have $5 to be able to use towards your fixed costs and then ultimately make a profit. With the Louis Vuitton, let's say it was 30% more than what this was. So 30% would be another $4.50. So let's say it was $19.50 to make, okay? Which would ultimately give them a $480 profit margin, okay? So hopefully you guys are seeing this, guys.

So five goes into 120 times. So you got 80 minus, what is that? So about 96. Okay. So in order to sell this many handbags and marshals, they have to sell 96 times more, 96 more bags to be able to make the same amount of profit that Louis Vuitton does on one bag. Okay. Once again, 96, how much more effort, time, energy, like concern, right? Does it take to go and sell 96 times more? Like this is how you have to really understand your market. And this brings us to the next part, which is like a dollar more, $1 more equals way more to you than your customer, okay?

And let me give you the example, going back to this. If you charge, if you are Marshalls and currently the cheapest in the marketplace, and you decide to charge $21, your margin goes to $6 rather than $5. That additional dollar increased your profit margin by 20% to the end user, to your customer. They don't really even know the difference between $20 and $21. And this is so important for you to understand that a dollar to you means way more than it does a dollar to your customer. So let's use your example. Say if you're charging $10,000 for your service, it's an HVAC service or whatever it may be, and your cost of goods to get everything on the roof, let's say it's about $7,000. And so you have a $3,000 margin, okay? Or a 30% margin. If you increase your price to $11,000, okay? Which is a 10% increase to the customer, okay?

So it costs them 10% more to go with you now at $11,000 than it did at $10,000. Your cost is still the same. Let's say you added about $50 more in service. Okay. So now you're making about 40 or $4,000 gross profit. That increase over the $3,000, scrolling up here, is 33% more profit. Can you believe that? 33% more profit. You increased by 10% and you're able to make 33%. This is what I mean that every dollar is worth way more to you than it is to your customer because you have this cost of goods sold, right? And the customer, really, every dollar increased over what you're currently charging. If you did not increase your service, your quality, your product, or anything else, every single dollar goes directly to the bottom line as it does in this example. You have a thousand dollars more going to your profit. And this is something that is so impaired to understand, right? Like if there are people out there that are charging more than you,

do not differentiate yourself as the low cost provider. Be confident that your price is great. And we're going to jump into the next videos and we're going to talk about this, the confidence that you have to have and that you are okay to be charging more. And you are going to be able to justify this by certain features, certain speed to market, certain efficiencies that you are going to provide. But at the end of the day, similar going back to the Louis Vuitton method up here, because they charge $4.50, they actually can provide a better product.

They can provide better customer service. They can provide all those different things and it allows them to charge way more. So this profit margin allows them to really invest into their organization. That's ultimately what you are wanting to do. of them having your product. And so if you go and you sell a 20-year or a 30-year product, you want to be able to rubber stamp that you know that you are going to be in business tomorrow, 10 years from now, 20 years from now. Profitability is the only way that allows you to do this. In fact, we'll talk about this a little bit more in sales, but I want you to think about this. One of the things that we always train our sales reps to actually tell people when they come and they say, hey, why are you 20% more or $5,000 more or $10,000 more? One of the first questions that we like to ask our customer is to say, hey, I understand

your concern. Why is it important to you that we are profitable? And that's usually like a, wait, what? Yeah, why is it important, Mr. Customer, that we are profitable? And then they begin to start talking through the situation like, well, if you're profitable, you're going to be around. You're going to be able to field my service calls if I ever have an issue. There's not going to be an issue with warranty. There's not going to be any of these things, right? And so that's where you really have to have that level of confidence that it's okay to spend more. The other thing that we train our sales reps that is regarding not only just

profitability, but the fact that cheaper usually means cutting corners. And this is where you have to have that if a customer says, well, why are you $10,000 more? Or why are you this? Or why do you cost so much more? Or if they ask a question like, can you charge me less? Can you give me a discount? And this is what we train our sales rep. They're like, yeah, I mean, we could give you a discount. We could be less. But the only way that we're going to be less is if we cut corners. If we don't do certain parts of our service, we hire professionals and we make sure all the permits are properly pulled and the quality of our workmanship is top tier through our quality control and the speed that we're able to service. And after the fact, if you ever need

us, these are all the different things. What aspects would you like us to cut out to be able to get you cheaper? And if they're like, well, this and the other, I'm like, well, Mr. Customer, I understand your desire to get the cheaper service. Frankly, that is something that we refuse to do because we do not want to cut corners. We are the top tier product and service provider of this particular product. And so if you want to go where somebody else, I can give you a phone number of somebody that will take care of you at a cheaper rate. And having that level of confidence, that level of like, boom, we know that we are positioned correctly and we refuse to come off of the quality of service that we are going to provide.

And ultimately, this is what allows you to create what I call an apple, this is an ugly apple, to orange comparison, right? A lot of times we're trying to be the cheapest in the market and we're really not giving anything to differentiate ourselves, right? Like we're allowing the customer just to compare apple to apple or orange to orange. Ultimately, you want to be so distinguished in the quality of product that you are providing. We're going to talk about this in more sections, but there is no comparison. There is only, you are aof-one product and service provider. This is where you have to develop your mentality around why I am justified at charging the most in the marketplace. In fact, my companies many times are known for being twice as much as a lot of other service

providers in the same exact type of product. And this actually goes on to one of my favorite case studies ever done. And this particular case study is about bugs, burger, bug killers, right? And these guys, they were not a pest control company, but a pest elimination company because they had these warranties. And we're going to talk more about these types of things, but, and I'm going to drop the case study that I got at Harvard. I'm going to share that with you guys that talks about how these guys charge seven times their competitors for a very similar service, but they always etched it up 10, 20, 30%. They had warranties and all these different things. That has to be the goal. How can I be so distinguished, so different that I am an apple to orange comparison and it justifies

me paying or charging the most in the marketplace? I need to be around for these customers forever. So I want you to think about right now in this exercise, okay? Think about who's the cheapest in the marketplace? Who is the Walmart of your product or service in your region? And what is that price? Is it $100? Is it $1,000? $10,000? And then you want to think, who is the most expensive? Think about this, okay? Are they $10,000? Who in your market is charging for your very similar service the most? And ask yourself, am I the cheapest? I'm the most expensive? Chances are you're somewhere in between. And ask yourself, what is keeping me from being the most expensive? Is it just my mindset around price? Am I really providing

the best service? Do I have an opportunity to improve my service? If my service is as good as the most expensive, why am I screwing myself by charging the price that I am? These are things that I want you to think about. Take 10, 15 minutes, write down a few of these things, and then we'll see you on the next video.