When is the best time to raise prices for Contractors Dave Negri 259

January 11, 2018

When is the best time to raise prices? Today I’m going to talk about what most contractors are afraid to do raise prices. We talk about all the time and acknowledge it. I need to raise my price, but most are afraid to raise their prices. So when is the best time to raise prices and how do I do it.

And I want to tell you all the time whenever you can but tell us about this systematically. Ok, so I’m a firm believer that most of the time our prices are too low. Now there are some guys out there that just rip people off and jack people up. And so, we’re not going to go there. We’re going to talk about delivery of value. Getting your best price that you can get and to continually raise your prices until you hit a resistance point.

I want to talk about Disney World. You know they have a tendency to raise their prices. They’re continually raising systematically until there’s a resistance and when there’s a resistance they stop and then your ticket sales will start rising again and then once they get them to where they want them then you’ll start raising prices again.

So that’s really want to talk about your value to raise your prices because most times every contractor I see is cheap for the most part. I mean you’re talking about the majority. And I want to get you out of that room with that thinking of how but I want you to be able to raise your prices. I’m a firm believer that if you wait until tomorrow. Raise your prices by 10%. None of your customers would ever notice that difference.

So, rule number one tomorrow is the day to raise your prices to raise them by 10%. So, I know a lot of you guys are saying right now we’re going to complain again complaining. Listen, if they complain they don’t understand that you’re in terms of maybe gas has gone up. And a lot of other things have gone up systematically supplies have gone up. Then they really don’t understand what it takes to run a business. And listen they’ve been here for a long time and they don’t understand this. Guess what. You don’t need them as a customer because you’re supposed to be doing this for profit, not for fun.

Listen, let’s take this, for example, the other day I go running through McDonald’s and I go to pick up a cup coffee and I think it was a sausage burrito. Now when they came out, sausage burritos , You know I do the dollar menu. I didn’t get coffee. And so, the other day not too long ago in and it’s like a dollar thirty-nine dollar for dollar forty-nine out for you what it was but it was like it jumped 50%. And guess what. Nobody complained. And everyone’s still buying sausage burritos.

So, my thoughts to you or my question to you are, what’s it going to take for you to raise your prices so that you can be profitable. And that’s really what it comes down to being profitable in the marketplace. So, let’s go over a couple of things and we’ll just talk about them briefly.

OK so here’s something that would really scare the crap scare the crap out of you. Dan Kennedy is one of my mentors. I read all of this stuff and women was thinking my business and he says, what you need to do is raise your prices by 5%. That’s a great philosophy but it will scare the crap out of most of us because we’d be afraid of losing half of our business. Now, what would really happen if we lost half of our business and we raised our prices we’d be making the same amount of money with fewer clients. And wouldn’t that be a cool thing? But we’re all afraid to do that. So just do it in small increments. OK, just small increments.

Going back to the McDonald’s scenario where they ran up 49 or 50 percent in their pricing. Do you think they made more profit? Well absolutely. Do you think they slowed down on their burrito so they may have but if they slow down 2%? They’re still making more profit if they so than 10%. They’re still making more profit. But for the most part, you know it’s not going to happen.

So, another great time to raise prices is really when you’re busy. So why would you want to do that while you’re busy? You’ve got things scheduled out you don’t really care so much depends on who you are about you know filling in that gap because the gaps are already filled. Your pipelines are already filled with work so you can raise your prices to raise it for elasticity to see how far you can go before you know they’ll say no.

And if they say no then the next one brings it down a little you get to play with it when you’re busy. But here’s the exciting thing is here’s what I want you to think about if you’re afraid if you’re really afraid to raise your prices I want you to think about this I want you to think about how important it is for you to be profitable in your business to pay for the things that you’ve always wanted to pay for your family.

And so, if I’m just going to put this in a perspective and maybe you like it maybe you don’t. And I really don’t care. Is it more important for you to supply the necessary needs for your family? Or are you going to try to make your customers happy by giving them cheap prices?

You have to. You have to answer that but I’m going to say listen you don’t want to be a commodity and that’s really what this is all about raising your prices so you are no longer a commodity. So, if you’re if you’re doing proposals if you’re doing estimates by price only stop it. You’ve got to give value. So how do we give value in this whole context?

Well if someone says I want a price for paying so a lot of guys will I’ve seen guys write painting proposal on a lot of cars or they’ll just say well we’re going to pay the interior house this room this room this room for X amount of dollars or even pressure Clinton to do this-this this and this. But I want you to think about it and here’s where the real value comes in. I think this is personal. This is one of the things that I do and it helps me become more professional and less of the commodity because I give them a complete breakdown of what I’m doing of how it’s going to get done.

The process is going to go through. And you know most one guy’s proposals are one page. Mine can be 10 or 12 pages depending on what we’re doing because I put so many so much stuff in there that I sort of kill them with professionalism knowing honestly, I know you’re saying well they’re not going to read all this stuff. I know they’re not going to read all that stuff but here’s the important thing because you have all that stuff. They’re not going to say wow this guy has a lot of stuff and the who gets one page say this guy is not very professional.

So here let’s go into the process of the proposal and the pricing. I’m a firm believer in giving you know three-part proposal. Good better best or high medium and low and it due to an hour or you to do high medium and low not low medium high. And for the most part, most people will go towards the middle. But when you do an I’m going to I’m going to pick out myself for the most part for paying proposal so let’s just say that I have someone who wants the interior painted on their house.

And so we’re going to go through and we’re going to line item everything we’re going to put to paint for the ceiling the painting for the trim work that broken out towards doors and casings and then another one for baseboard and then another one for crown molding and then another one for miscellaneous. If they have additional work and then I have one for walls only. And then you know closets and then I’d do a breakdown of the prep work that we’re going to do to go through the covering of the furniture taking off of the switch plates of the work that needs to be done to have this make a complete project so it’s not just painting.

A lot of guys think about they are going to  paint. No, you’re not going to the paint you’re going in to create and it’s not really an illusion you’re going to create the facade and then run not even a facade you’re going to create this system .Step one step two three fourths of five steps 6 7. And why are you going to do that. Because this is where the value is the value is putting together the process so that when the customer looks at this painting of walls throughout the house well if some you guys don’t know this the wall space is about two and a half times that of the square footage space.

So just for the fun of it just say have a thousand-square foot house. You’re going to paint two thousand five hundred square foot of wall space two times not two coats of paint do you see where I’m going. You’re going to the extremes so they’re going to look at it and say wow I don’t want to do this amount of work and I’ll do it myself. This is worth the real value is. And if they don’t want to pay the price that’s fine. But you’ve created value there and the profits in the profits.

You know I was looking at here is the funny thing the other day I was looking at a proposal of a guy for putting in a floor they put in a proposal and in a proposal, they put in ripping up the old floor. But not only did they put in as a square foot price of covering everything with plastic. Who would have thought that floor guy going to charge you to cover it because you think well he’s going to just install a floor?

Well no because they had to do leveling. So there was so much for the leveling and that you know so he did this in the same. So the customer’s going to say man I couldn’t I couldn’t do that. So I would be willing to pay someone to come in and do that. And this is where the customer sees the value of the price because a lot of times it’s not just the price.

Granted there are some people that shop by price but really when you’re dealing with most a lot. I’m going to say a lot I’m going to say most people they’re looking at price number four or five. The main reason they look at the price is to see if they’re getting the value for the price that you’re charging.

So that’s why I always go into infinite detail when I’m doing proposal I put in you know repairs would repairs replacement all kinds of things so that they know that when I’m doing it that I’m going to be professional about it I’m going to cover the furniture and take the switch plates off and then I’m going to actually I can even give him a price for not moving the furniture. If they want to then when they come and say, geez this is a lot more than I expected I can look and say OK what don’t you want taking care of seeing that takes out of their mind.

The thing about discounts because you’re saying why don’t you want to be done in this proposal. And you’re thinking why if I say I was higher than I expected. They’re thinking oh he’s going for the discount. No, I don’t do discounts because I don’t like giving money away. I would rather not do something, we could cut out. I had one customer once who just said Oh I never thought about that and I said well this is something that you don’t need to be done but you asked to have done should we take that out. Yes. Oh, I can live with that price. So, it’s defining what the customer wants giving them the value of what they want. And now you can get the price by doing that because you’ve raised your price to be profitable.

Well how. Here’s one thing that I see consistently with a lot of guys is they really don’t know what it takes for them to be profitable. They don’t know what their bottom line is they don’t know what their expenses are they don’t know what the payroll is they don’t know what they are. All other ancillary expenses are like their insurance or gas or truck or truck rental and car rental but there their truck payment. And so, you’ve got to take all these into consideration and then figure out what you’re based on 40 hours. Break it down into what your per our cost of business is doing. And now add profit to that and depending on what your cost per hour is then you add your profit.

Now I know lots of guys that will go. Yeah well, I can do 20 I can do 30. I’m going to be real honest with you. If you can’t run a 45 to 50 percent profit margin on your stuff then it’s going to cost you to do business because there’s going to be things that are going to be hidden like mistakes and errors and broken stuff and reduce and so there’s got to be room in there. For all the stuff that you are might not consider.

And then there’s enough profit for you to fix it instead of getting mad insane or getting mad and walking off the job because I’ve seen a lot of guys do that. So, this is where you basically want to be in this area so that you can raise your prices so that you become more profitable.

Ok, so I’m going to tell you a little story about Steve a guy that I used to do a lot of business with and work on the same line. When I did a lot of new construction Steve was a carpenter and an excellent carpenter for a matter of fact he was a homebuilder. And then he moved to Florida and he just did trim carpentry for his first trade. And he was very good at that. Got a lot of business.

One guy and sometimes he had to helper but most of it was by himself and like I said sometimes he did have a helper. But here’s what happened. One-day Steve was working on this really huge house big house and he was there for a couple of months. And every once in a while, a contractor or one of the other guys in the trades would come by and take Steve for a walk out back and say, Steve, you need to raise your prices. You’re too cheap you’re just too cheap. And basically, what’s happening is you’re given the rest of us bad names. You need to be up with us. Not that we’re they were super expensive but they needed to be needed to be up with the rest of the crop. He didn’t need to be cheap because he really wasn’t. His work was that good that he could raise his prices and not worry about it. But he was looking at fear mode. Which a lot of you guys do.

And then this went on for a couple of months. Every once in a while, one of the guys would come in and say Hey Steve take him out back. They didn’t beat him but they came up back and talked him and say hey listen you really need to raise your prices. You are too cheap. I don’t even know how that you can live the way you live and pay the prices. Of course, I knew he lived in a mobile home so he didn’t have any expenses. But still, it doesn’t matter. You need to be able to put money aside for days when you’re slow. Come on you’re not going to be busy all your life and no matter how good your funnel is every once in a while, you’re going to slow down a little.

So, I guess it’s the end of the project. The homeowner is sitting down making out Steve a check for his invoicing and Homer looks at Steve squirty eyes says, Steve, I got to tell you, you do excellent work but you’re too cheap Steve goes what. He says you’re too cheap goes can I raise my prices. He goes on the next job.

So, I want you to know that you know doesn’t matter happens to everyone. The fear of raising prices but really the customer knows when you’re too cheap. And listen to this guy and all of our customers will take advantage of us as long as we’re cheap they’re not going to say you’re too cheap. This guy was nice but most people are not going to say oh you’re too cheap we don’t want to do business with you because you’re too cheap. But if you raise your prices they’re still going to continue to do business with you. Why. Because they’re not dealing with you on a price basis. They’re dealing with you on a relationship basis and you need to keep that relationship going and the relationship needs to make a profit.

You need to make that profit. OK so here’s another thing I want you to consider in your pricing and all the time. And, here I am stuttering because it really does make me stutter some of these things that some of the guys I come across off. Go into price wars over their services. But here’s what I want you to know. Throughout the country, don’t matter where you are. There is a shortage of legitimate licensed contractors in your trade.

Granted there are people coming up through the weeds that are cheap and inexperienced unlicensed but licensed contractors for the most part. There is a shortage throughout the country and but yet even the licensed contractors have a tendency, for the most part, to fight amongst themselves all over the price because there we go. They’re afraid of raising the price, they’re afraid of not getting new work. And you cannot grow a significant viable business living in fear.

It’s just not going to happen. So just a quick overview. You’re going to have to raise your prices. Well in order for you to raise your prices so that you know what it’s going to take for you to be profitable. Because a lot of times we will lower our prices to compete on something. And when we get through, it actually costs us business, cost us money to do business with that person. I want you to sit down. I want you to go through and figure out what are your overall expenses. Line item everything. It’s really simple. Just take a piece of note paper write down your expenses your truck. You know what they are you are you should know what they are. Write them down. Figure it out per hour basis then add 45-50% too it. And I want you to think about adding profit to your products that you are using.

So, if you’re a carpentry you upsell you up the price. You got to go pick it up. So, you either charge for picking it up by the hour or you charge the profit for the product, same thing what do you guys that are doing paint. You charge retail plus you don’t charge retail because you’re buying at 20% discount. You need to charge retail plus a percentage of profit or do your wholesale plus 45 I don’t care. But there needs to be profit in everything you do because that’s the way business runs. Every other business runs that way. So, raise your prices to become profitable. That’s the only way that you’re going to continue to survive but you want to do more than survive in business.

You want to grow. You want to exponentially grow. You want to grow your business. You may want to grow it into more employees or more service trucks or whatever the case may be. But in order to do that, you have to start at a point of where that’s what does it take for me to be profitable from day one from the very beginning. And where do I move out from there and don’t play with those numbers?

Because always remember the prices, the prices, the price. And when you cut your price, you cut your profit and then you have to figure out the numbers. I don’t know what is it going to take to overcome that. So, if you actually cut your price and I’m going to cut it off with this if you cut your price by 10% you have to sell 50% more to make up for that difference.

Think about that. Just think about that next time you want to give a discount. It’s not the discount today is what is it going to cost me to make up that profit tomorrow. So, hey thanks for listening. I know that this is an item that a lot of you guys are afraid of doing.

Just do it implement it and get it over with. And because like I said you need to profit in your bank account today. So, go grow your business and build it the way you want to don’t have it run you-you run your business.

There are so many ways to do almost free marketing you just have to think about it or you could just go to the web site and pick up the free download.

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