The EXACT letter I used to INCREASE customer prices...don't chicken out Ep 319

Summary Notes


In this podcast, the host and their guest discuss strategic methods for raising prices for existing customers without alienating them. They emphasize the significant impact of pricing on profits, illustrating that even a small increase can substantially boost earnings. The guest outlines a compassionate approach to communicating price hikes through a well-crafted letter that highlights company growth, current value provided, and future improvements. They suggest framing price changes in a way that maintains integrity and customer relationships, while also offering individual solutions for those significantly affected. Additionally, the guest advises against engaging in public debates about the increase, opting for direct conversations instead, and stresses the importance of following through once a decision is made.

Summary Notes

Introduction to Customer Value Maximization

  • The podcast focuses on strategies for businesses to increase customer acquisition, enhance revenue per customer, and improve customer retention.
  • The discussion includes lessons learned from failures experienced by the speakers.

Welcome to the game where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe.

The introduction sets the stage for the podcast, indicating that the content will cover various aspects of customer value maximization and includes practical advice based on past experiences.

Importance of Pricing Strategy

  • Pricing is a critical lever in a business's profitability.
  • Speaker B emphasizes the substantial impact that price increases can have on a company's net margin.
  • A detailed example is provided to illustrate the effects of different percentage increases in pricing on profit.

And the number one lever on making money is what you're pricing at, right? We've done this in thousands of businesses now, and there's a process that we go about this...

Speaker B highlights that pricing is the most critical factor in determining a business's profitability, suggesting that a well-thought-out pricing strategy can lead to significant financial gains.

The Impact of Price Increases on Existing Customers

  • Speaker B warns that increasing prices for existing customers can lead to dissatisfaction and potential loss of business.
  • An anecdote is shared where Speaker B increased prices in their own business, resulting in both a decrease in customer base and an increase in profitability.
  • The story demonstrates a strategic culling of the customer base to retain only the most loyal customers.

But here's why this is so important. So let's say that your business runs at a 20% net margin... If you doubled your price, you would six x how much money you make.

The quote explains the rationale behind price increases and the significant potential for profit growth, even if it means losing some customers.

Tactical Approaches to Raising Prices

  • Speaker B stresses the importance of how price increases are communicated to customers.
  • They advise against abrupt notifications of price increases and instead suggest a more considered approach.
  • Speaker B shares their personal experience with increasing prices, which involved losing some customers but ultimately led to increased revenue and profit due to higher prices and reduced service costs.

So what I want to do is show you the right way, because the wrong way to do it is send an email out saying, hey, we're raising our prices, screw you.

Speaker B emphasizes the need for a tactful approach when informing customers of price increases to avoid alienating them and causing mass customer departures.

The Price Increase Letter

  • Speaker B introduces the concept of a price increase letter as a strategic tool for communicating price changes to customers.
  • They mention their book, "Gym Launch Secrets," which, while focused on gyms, contains applicable business strategies for various industries.

And so the way that we do this is through a price increase letter. And if you're curious, my gym launch Secrets book is a book that is about gyms, but it is a business book that is simply applied to gyms.

This quote introduces the price increase letter as a method for implementing price changes and suggests that the strategies discussed are not limited to one industry but can be adapted for broader business use.

Price Increase Notification Format

  • Begin the letter by acknowledging the company's growth and positive changes.
  • Explain the purpose of the letter is to inform about a price increase.
  • Resell the current value provided to customers, highlighting aspects they may have overlooked.
  • List specific ways the company invests in quality, such as hiring talent, continuing education, and updating software/equipment.
  • Clarify that the company's costs are reinvested into providing value, not just profit.
  • Share aspirations for further improvements and added services to enhance the brand and customer experience.
  • Announce the intent to add new features, programs, and events to the business.
  • Connect the price increase to a commitment to delivering increased value.

So the first thing that we want to do is we want to say, hey, you've probably known that we've been growing a lot. You've probably noticed a lot of the good things that are going on right now. And so that's why I'm writing this letter.

This quote explains the initial approach to writing a price increase letter, starting with a positive tone by acknowledging company growth and improvements, which sets the context for the forthcoming price increase.

And so you want to list out the stuff that you're doing and say, okay, we hire and retain the best talent. We offer continued education for our employees. We're providing new softwares and equipment to our members that we always try and keep up to date. That's what we're currently doing.

This quote details the importance of reminding customers about the value they receive, including the company's investment in talent, employee education, and up-to-date resources, reinforcing the justification for the price increase.

We want to really level up the brand, and we want to do it for you, right? So you want to tell them what's coming. So this is like, we want to add these x, y, and z things. We want to add specialty programs. We want to add higher levels of service. We want to add events to our business.

Here, the speaker emphasizes the need to communicate future plans for expanding and improving the business, which helps customers understand the reasons behind the price increase and the benefits it will bring.

Tying Increase to Promise of Value

  • Emphasize that the price increase is tied to a promise of delivering greater value to customers.
  • Explain that the additional revenue will be used to enhance the customer experience and service level.

And then what I like to do is I like to tie this increase to a promise of values. Okay? Now, what I mean by that is real quick, guys, if you can think.

This unfinished quote suggests that the speaker prefers to connect the price increase directly to a promise of delivering greater value, implying that the increase is not for profit alone but for reinvestment into the customer experience.

Discovery of the Podcast

  • The podcast grows through personal recommendations and word of mouth.
  • Neither advertisements nor sponsorships are utilized for promotion.
  • The host requests listeners to share the podcast in the same way they discovered it.

"About how you found this podcast, somebody." "Probably tweeted it, told you about it." "Shared it on Instagram or something like that." "The only way this grows is through word of mouth."

These quotes highlight the organic growth strategy of the podcast, emphasizing the reliance on listeners to spread the word.

Host's Philosophy and Listener Engagement

  • The host does not engage in commercial activities such as running ads or sponsorships.
  • The host believes in the value of good karma and integrity.
  • Listeners are encouraged to 'pay it forward' to support the podcast and the entrepreneurial community.

"And so I don't run ads. I don't do sponsorships. I don't sell anything. My only ask is that you continue." "To pay it forward to whoever showed." "You or however you found out about this podcast, that you do the exact same thing." "So if it was a review, if it was a post, if you do that, it'll mean the world to me." "And you'll throw some good karma out."

These quotes reflect the host's commitment to maintaining a non-commercial, community-driven approach and the belief in the reciprocal benefits of sharing valuable content.

Value-Driven Pricing and Communication

  • The host is committed to providing a high level of service and maintaining integrity.
  • Price increases are justified by the promise to deliver the best service in the marketplace.
  • Communicating price changes should be done in a manner that minimizes perceived cost.

"I want to tie this to values that I ascribe to, that no one can contest." "I have made this promise to you and with integrity, I can no longer provide the level of service that I have promised unless we do these things." "And the only way for me to do these things is for us to have a corresponding increase in price."

These quotes convey the host's dedication to value and integrity, explaining that price increases are necessary to uphold the quality of service promised to the audience.

Strategic Price Communication

  • Price should be communicated in a way that sounds more attractive to the customer.
  • Breaking down costs into smaller increments can make them appear more manageable.
  • The host uses the example of insurance quotes to illustrate the effectiveness of daily cost presentation.

"Now, mind you, when you're communicating the price, it's also important to communicate the price in a way that's attractive." "So you don't want to say, hey, it's going to cost you $5,000 extra a year. It'd be better to say, it's going to cost you an extra $100 a week, right." "It's only a dollar a day."

These quotes discuss the psychological impact of how prices are presented, suggesting that smaller increments make the cost seem less daunting to the customer.

Integrity in Business Practices

  • The host emphasizes the importance of continual investment to be the best in the marketplace.
  • Communicating the value and necessity of price increases is tied to maintaining integrity and fulfilling promises to customers.

"I am fervent that this is something I'm planning. My flag here is that I demand to be the best in the marketplace." "And for us to do this, we must continually invest." "And for us to do that, this is what is required."

The speaker stresses the relationship between investment, quality, and integrity, highlighting the rationale behind needing to adjust prices to maintain high standards.

Empathy and Customer Support

  • A personal touch is added to the communication about price changes, acknowledging potential customer hardships.
  • The host offers to work with customers who may be significantly impacted by the price increase.

"And what I do here is I say, if this is going to materially affect your life, if you're not going to be able to pay your mortgage, you're not going to be able to buy groceries for your kids, please reach out to me and we can figure something out." "And so by saying that, you automatically perspective to everyone that, listen, no one's going to go homeless over this thing."

These quotes show the speaker's understanding and willingness to support customers who may face financial difficulties due to the price changes, emphasizing empathy in business.

Communication Strategy for Price Increases

  • Announcing price increases should be done through video and direct mail.
  • It is recommended to disable comments on announcements to avoid public negativity.
  • Direct, face-to-face discussions are encouraged for any concerns.
  • Sticking to the decision is crucial once the price increase is announced.

"Now, if you make an announcement like this, which I recommend you doing via video and via direct mail, you want to make it."

This quote emphasizes the recommended mediums for communicating price increases—video and direct mail—to ensure the message is clear and personal.

"And then also turn the comments off on whatever the post is, because believe me, you don't want to deal with that if you just say, hey, I don't want this to be a gossip forum."

Turning off comments is advised to prevent public backlash and to encourage individuals to approach the business owner directly with concerns.

"Out of respect for you, I want to deal with these face to face and not over the keyboard."

Face-to-face communication is preferred for handling concerns as it shows respect for the customer and avoids misunderstandings that can occur with written communication.

Business Economics of Price Increases

  • Raising prices can double profits if the business has a 25% margin and increases prices by 25%.
  • Losing some customers as a result of price increases is normal and can be beneficial.
  • Customers who leave are often the least profitable or most problematic.
  • The difficulty for customers to find alternative businesses can work in favor of the one raising prices.

"Because I'm telling you, if you raise your price, like I just told you, if you have a 25% margin and you raise your price by 25%, you double your profit."

This quote explains the direct impact of price increases on profit margins, illustrating how a 25% price increase can lead to doubling profits.

"So I told you I lost a third of my customers. That's because I tripled my price."

The speaker shares personal experience, indicating that significant price increases can lead to customer loss but can also be part of a successful strategy.

"And the people who do leave are usually your worst customers, and you've been wanting to get rid of them anyways, and this gives you a great time to do it."

This quote suggests that price increases can serve as a way to filter out less desirable customers, improving the overall customer base.

Structuring the Price Increase Announcement

  • The announcement should explain the reasons for the price increase and set the stage for understanding.
  • It should detail current services that customers may be unaware of.
  • Future benefits from the price increase should be highlighted.
  • The announcement should end with a discussion of values and a big-picture perspective.
  • Ensuring customers understand the increase won't have a catastrophic impact on them is important.

"I write a letter, I tell them why I'm setting the stage for why we're doing this. I tell them all the things that we're currently doing that they don't know that we're doing."

The quote outlines the structure of the announcement, starting with an explanation of the reasons behind the price increase and highlighting the unseen value provided.

"Then you tell them about the future of what's going to happen, what the benefits are going to be to them, to what they're about to enjoy, and how that's going to impact them in a real way."

The future benefits of the price increase are emphasized, ensuring customers understand how they will gain from the changes.

"And then finally, I like to end with values and perspective. All right, so probably values are right here. So values is kind of the wrap up. So just consider that 3.5."

Ending the announcement with a discussion on values and perspective is recommended to reinforce the company's commitment to its customers and to mitigate concerns about the impact of the price increase.

"And then you have your wrap up, which is, hey, big picture, this isn't going to make you or break you. You're not going to go homeless because of this."

The wrap-up of the announcement is meant to reassure customers that the price increase is manageable and will not have severe negative consequences for them.

What others are sharing

Go To Library

Want to Deciphr in private?
- It's completely free

Deciphr Now
Footer background
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon

© 2024 Deciphr

Terms and ConditionsPrivacy Policy