Episode 138: Pricing Increase & Biz Strategies Update from Sandia Green Clean

Episode 138: Pricing Increase & Biz Strategies Update from Sandia Green Clean

Brandon Schoen:
Hey, everybody. Welcome back to another episode of the profit Cleaners podcast. The only place where you can learn from the top 1% of cleaning business owners from around the world. Take it to the next level and win. Guys, thank you for being here. Thank you for the opportunity to help you grow your cleaning business. We are truly grateful. And I'm your host, Brandon Schoen. I'm joined by my co host, Brandon Condrey in the house.

Hello. There he is. We are re recording this podcast for you guys for like the third time because I'm having Internet issues. But let's get into it, guys. So today we've got an exciting podcast. We're going to be talking all about one of your biggest questions, which is all about pricing. And we're going to be sharing with you guys pricing updates. We did a price increase recently. We're going to share what happened, what that affected as far as revenues and profits.

We're going to really exciting, actually. And we're also going to just share kind of a story that happened in the Facebook group recently. Somebody did increase their prices and blew up their business and lost a bunch of customers. So we're going to talk about kind of like do's and don'ts of doing price increases, how often to do them. We're also going to talk about pricing by square footage and pricing by hourly and different ways you can do it and why we do it the way we do it.

So let's jump into it and start answering your questions because I know you guys are dying to get answers to the pricing and how to do it better and how to make more money. That's what we're all about at profit cleaners, right, Brandon? Correct. That's right. All right, so let's just catch everyone up to speed. I guess we could start with our price increase or we could talk about the problem, one of our people in the group losing a bunch of customers.

What do you want to start with, Brandon? Let's start with the data. Price increase and lost 50% of your customers. Yeah, let's start there. So just to get you guys updated here on the story, this was in our free Facebook group. This is where you can definitely join and get a ton of value. Go to profitcleaners.com Facebook. Join this group. We're talking all the time about growing your cleaning business.

Someone posted recently, hey guys, I did a pricing increase and lost a bunch of customers. So I think the story was her son was helping her kind of take over the business. She was retiring. She had hadn't done a price increase in 20 years, which is a big problem right there. You don't want to wait that long. But she hadn't done it. The son came in, was like, hey, we could be making way more money.

Let's raise prices. Right? They raised prices pretty significantly and they lost about half their customer base. So let's just dive into that scenario and what went wrong and how we could avoid those pitfalls for everyone else raising prices. So, yeah, I mean, I think the obvious answer here is that you can't wait that long. You can't wait 20 years to raise prices, because if you try to adjust to market rates after 20 years, the price increase is going to be huge.

And so you've got people that have, you know, I've been paying this much since the early two thousands, and now it's like triple the price. I don't know how much they went up by, but should be something like that. So the idea is you want to get into a routine of raising prices regularly, once a year, once every other year, every 18 months, maybe, but you do it in little increments that people can tolerate.

So, you know, like, inflation is always on everybody's mind. And we're recording this in early 2024, and things have kind of calmed down. I think inflation numbers actually came out yesterday. We're at 3.1%. But in the peak of post Covid financial stimulus, inflation was over 9% and people were freaking out. So the Fed, the ones who raised the interest rates, their goal is to keep it at 2%.

We want inflation to be a flat 2% all the time. That's the object. So the thing about raising prices or not raising prices is inflation's continuing without you. So that company that hadn't raised prices in 20 years, they went through 20 years of normal inflation, which is ideally around 2%. But if you think of the period between 2004 and now, what that company went through, the 2008 financial collapse was a big deal, and her having low prices then probably mean that she kept more customers.

But as soon as everything rebounded and the economy started to come back, if you're not raising prices, that means that you, the company and the owner are paying for the inflation instead of the customer. So instead of you taking home 20% profit in 2004, it may be like no percent profit in 2024. And that's not because, like, the economy is screwing over small business owners or anything, it's because you didn't keep up with market trends and then you're losing money on the back end by not doing that.

And then, of course, if you do a huge adjustment, I would expect a bunch of people to bounce. But losing 50%, that's not so bad to me. Like, if the prices went up significantly to market rates, then your. Your revenue is probably going to stay about the same at losing 50% of customers as long as you did a big enough price increase. And then whatever we try and tell people is anyone who cancels after a price increase, all that did was free up a calendar slot for a future customer that doesn't even know that you just did a price increase.

And they think that that's a very reasonable price because they came from some other company. So that's the general thoughts on increases in rates and inflation and things like that. What do you think about that? Yeah, absolutely, man. I think that is, we could actually share a story of in the very beginning when we did this, and we've done this several times over the years that we've been in business, guys.

But the very first price increase we did, we did a pretty dramatic price increase, and we did it different from what we're telling you guys, which was. Do you remember what it was, Brian? Like, some people had 20, some people had 40% price increases. Like, all over the board, right? It was all over the map. So when we were brand new, right, we had pricing from a company in Denver that we were using as, like, a.

A benchmark. But Denver and Albuquerque are not the same market. Albuquerque is a lower cost of living, but wages are lower, too. So we were trying to balance this out. And in the beginning, you know, we had a good business plan. We had this plan in our heads. This is how it's going to take off when we launch. It did not take off when we launched. So we were burning through money in the form of payroll for free cleans to get reviews for rent on a building.

We were just hemorrhaging cash. And so we were saying yes to anything. We'll clean it for $100. How about 50? Sure, whatever. Like, we were just agreeing to everything just so we could get some revenue coming in the door. Well, then, like, okay, things stabilized. Everything's not so crazy. And I think we did that price increase in 2018, like, just after being in business for a year. I think it was the summer of 2018.

And what we had come to, the conclusion was, we want to standardize everything. So our pricing is based off of a flat fee based on square footage. And I wanted everyone in a 1500 square foot house to be paying the same thing. So what we did is we individualized the price increase for all these customers, and some people got a very little price increase because they hadn't been on that long.

But some people from, like, the first couple months when we signed up, I think the biggest price increase that went out was almost 40% or more. And so if you picture a 40% price increase, man, it just opens the door for them to nitpick quality. Any complaints they had are now suddenly costing them like one and a half times what it was before. And so we lost a lot of people.

We had kind of a mental benchmark of, if we lose 25% of customers, we'll rethink this. The last customer finally canceled and we ended up losing 22% of the customer base. But we kept, you know, 78. So we kept 78% of the customers on that new pricing. Everything was standardized. And every price increase after that is the way we're telling you to do it on this podcast, which is a little increase once a year, maybe every other year, so that people get used to, you know, like, this is a business.

It needs profit to run. And just like you, like you're going to ask for a raise if inflation gets bad. I am asking for a raise from you, the customer, so that we can continue to offer good service. So, so, yes, mistakes were made the first time. Learn from our mistakes. Don't do it like that. Do little ones along the way? Yeah, absolutely. And a couple, there's other takeaways in there would be, like Brandon said, don't do this all at once.

Don't wait these huge gaps of time. And then do these huge increases, do it incrementally more often. Right. And more frequency. So once a year, the one we did before, the one we're going to tell you guys just last month was 18 months ago prior to that. And so kind of after that first jumping off point and really screwing things up, we were like, wow, we're not going to do that again.

What we kind of changed is instead of individualizing the pricing and sending very specific messages and notes and even like, letters to the customer's house as being like, really in their face about it, you know, moving forward, we were just more so just sent out a general email to all the customers and said, hey, prices are going up. Here's what's in it for you. Here's the benefit to you as the customer.

Here's why we're doing this. We're improving these systems, we're improving training. We're investing in these more customer service reps to help make it a better experience for you, better training for them, better tools, better products, whatever. It was, right. And they're different every time. But as you guys growing and innovating, you should be constantly making these changes and these progress anyways. And so you're adding more value. The prices naturally should go up.

But yeah, it was explaining the why and not individualizing it and just being a little more broad about it to the point where that email goes out maybe a few weeks out ahead of the price increase, if people do reach out. Hey, I heard prices are going by. I just saw that it went up. You know, then we train our teams on the back end and whoever's answering the phone, how to handle that, how to overcome that objection.

And really, this last time we did it, it was basically what we were looking at is just something a lot simpler, being a little more vague about it. But honestly, especially in this time of the economy and the world, people are expecting prices to go up. Like, like Brandon said, you're in business, you got to stay in business. People are already seeing the prices go up in food and everything else in the world.

Naturally, just because prices go up on gas and food, it doesn't mean you're not going to eat. It doesn't mean you're not going to fill up your car. It doesn't mean you don't have the money. It just means you have to see the value. Right. And so in our terms of running a business, we have to show people, here's the value, here's the reason why we're doing it.

As long as the value exceeds the price, people are going to keep paying it. So those are some of the takeaways. I think the bigger takeaways. And every time we've done it that way since Brandon, would you agree it's gone a lot smoother? This last price increase, we had hardly any cancellations at all. And the silver lining is more great people come on board and fill those spots.

Right. So that's what you were saying. Yeah. So part of that that you talked about was how we over communicated that first big one. I didn't want to catch anyone by surprise. I didn't want it to be slimy, like we were sending one little text message, like, heads up, just on the sly, price increase next month. I wanted everyone to know that it was definitely going up. And I think that was kind of the problem.

Like we did over communicate that and what we should have done is what we're doing now. So we send out an email. It's vague. It doesn't say price increase. It says, hey, October update from San Diego Green clean. And then we tell them what's going on. And then we say, hey, there's going to be a small price adjustment. And we just leave it that small price adjustment. Here's what it's covering.

We're adding on health insurance policies or we're adding on this, or we're going to do some increased training for some customer service stuff. So we're getting you better service. So you're telling them why you're doing the price increase, but we're not telling them how much the price increase is. So the price increase just says the, the email just says there's an effective date on this date. And then the ones that call in, the reason that this works for us is that in their minds, they've built it up to be this huge price increase.

Cause we did have some big ones in the past and we had some big ones during COVID So in their brain, small price increase means all, they're raising it by 25% again. And then they call in the customer service rep, looks them up, say, oh, yeah, so it was only a 5.5% price increase. And for you that means it's going to go up by an extra $13 per clean.

And then you just leave it at that. If they push back, we have all these rebuttals that we did train everyone that Brandon mentioned. Like, it's just the cost of, like, what a big Mac at McDonald's is, man. Like, is it worth a big Mac and McDonald's to keep your house as clean as it is now? Probably. So we kept it big on purpose. You know, this is a good time to tell you that, like, we do have a course.

The profit cleaners have a course. And you can learn more about that@profitcleaners.com. masterclass. And inside that course, we provide you all the templates of every price increase we've ever done. So you can kind of see what works as we evolve over time. So if you were to join up and be a member, then you do get access to those templates and things like that. So let's tell you how the price increase went that we just did.

Yeah. So this was from April. The price increase went live on April 1. We sent out that email that kind of leaves things a little bit vague. And I think we sent that out, I don't know, two weeks before, three weeks before. It wasn't that long. I feel like we gave them a short window, not too much. Okay, so short window in there. And then after that. So the price increase, 5.5%.

These are big aggregate numbers. So we're trying to hit these revenue numbers and this is what gets us to that number without trying to like, be nitpicky. And so since those price increases went live, I mean, there's, you know, like, it's not a lot of people that canceled. So after we did the price increase, we lost. I don't know. I mean, we're looking at maybe twelve people total.

I'm looking at the data right now. So twelve ish people cancel. And that email went out to our entire active customer base, which is like 1600 people that are actively getting service. And I think the email went out to everybody, which is probably more like three or 4000 people. Yeah. So of that, we lost twelve. That is a fraction of a percent. And then the effects were immediate.

Like April was our best month ever in terms of revenue, but also profit margin. So this podcast is called the profit cleaners. That is our goal. We are trying to make a cleaning business profitable at scale. And so that was our best month period across the board. And that was twofold, one at threefold, I guess price increased sales efforts by training the team and then expense reduction on the back end.

And this is something that our CFO likes to say. Like, in terms of money coming in and out of a business, there's two levers that you have. You have sales and expenses. So if you need more money, you either have to increase sales or decrease expenses. In our case, we're doing both. And so that paid off. We had a really solid month, and we plan to have lots of solid months going forward.

And the only reason that this works is because we do stay on top of these price increases. If we push this price increase and like, all right, were done, we nailed it. Two years from now, well be strapped for cash because wages will have gone up. Our employees will be asking for raises because inflation, they have to keep up with the cost of doing everything just goes up slowly.

So we have to maintain cars and we bought a building, our rent goes up. There's lots of things that you have to make sure you're on top of, but the object is, don't leave it for 20 years. Then when you go to your customer base to ask them for a price increase, they're going to be pissed because you have to do a huge adjustment. We want to do little adjustments to keep up with the market.

Yeah. And even these little adjustments, like you said, 5.5% doesn't sound like much. And it's not really guys, and it's not to the customer either. Like, obviously, twelve people really cared about it, right? So 5.5%, I believe the one before that was you. Correct me if I'm wrong, Brandon, it was like 8%. One we did 18 months ago was a little bit higher. But again, we did the exact same thing there.

And I want to say it was almost identical. Like maybe a dozen people were upset about it. They called in again, if people are really upset and you want to keep them as a customer, this is an opportunity for you to work with your people, too, and say, like, what could you do? What could you do this month? Could you do a little mark? Or how about we just keep it at that for the next few months while you go through this transition in your life?

So you can negotiate this, you can keep people at their same price. If it's only a few people out of all of your customers, it's not going to make a huge deal. You're still going to get the end result of increasing your profits. But this, yeah, is a great example of what Brandon said of the levers. You can increase sales, you can add a higher frequency of cleans.

Of course, you can add upsells like the breezy blue. If you guys haven't heard about breezy blue, go listen to that episode. A tremendous upsell. So that'll add more revenue per sale. But this is also just a way on the back end. Increase the price, right? Increase the price. And at the same time, you're increasing the perceived value because people perceive value from the price. And if you're continuing to evolve, continue to make better systems, better training, better processes, the better experience through all these things, you're adding that is going to cost more money.

So ultimately your prices should go up and the customer is going to expect that, right? So you shouldn't be upset about that or scared to do that. You know, at some point, it's a strategy to get into the market, right? And this is what we did, got into the market. We didn't do as much research as we should have done in the beginning. So again, learn from our mistakes.

Kind of set yourself apart in the market to start, if you're going to be aggressive with a lower cost to get in the market and get more customer acquisition, so now you can really take over the market more and then do those price increases later and do them smaller over time, and then you won't make as many people mad. And of course the value will be there because you guys will be improving, making the experience better.

So if you're over delivering constantly with better experience, better product, better clean, higher quality, more reliable, all these things we always talk about, people are going to almost expect it because you're over delivering all the time and it's going to build loyalty. So if you guys are doing these things in the back end, investing in your business, it's going to come back to you over time, even if you're more thin margins right now, look at the long term, big picture, delayed gratification.

If you guys stick it out, continue to over deliver, when you do increase prices, people are going to be like, yeah, that's fine, no big deal. And it's going to make a dramatic difference in your bottom line, just like it did ours every time that we've done this. So, yeah, it's kind of like a ongoing thing. We'll update you guys on the upcoming, you know, price increases in the future.

But like Brandon said, model what works. If you guys aren't in the coaching already and working with us? Jump in, guys. This is what it's all about. Just these small tweaks could literally make hundreds, thousands, tens of thousands of dollars of difference in your monthly revenue just by having this knowledge, just by executing on these things. So I don't know if you wanted to add anything else to that, Brandon, but we could also talk about just the different ways to price real quick because this comes up in the group all the time, too.

People are always arguing which one's better. Square footage pricing model versus hourly versus percentage versus all the other ways you can do it. Maybe let's just tell people real quick, why do we price the way we price? Why is it so effective? And, you know, maybe some of the benefits of that. I mean, ultimately, the way your price is up to you, what's going to work for your business, what your customers are used to.

The reason we settled on a flat fee per square footage is just that it's predictable for both the customer and the business. So I know how much revenue is going to come in based on what size of houses we're cleaning on any given day. So that's really good for forecasting and things like that. And then over time, the way our model works is that the same team goes to the same house each week.

They get more efficient over time. So the first few jobs that you do at that house are going to be the least profitable. But over time, they get more efficient and more profitable. So the longer a customer stays with you, the better it is for everybody. And it makes it easy for the customer to budget against. And it also means that we're not nickel and diming people by having to track all these hours.

We're tracking the hours anyway just for bonus and efficiency sake. But, you know, like, let's say you had a customer that was hourly, you got it really dialed in. You're there for an hour every week. One day your best cleaner called out sick, you sent a replacement, and suddenly it took 2 hours to clean that house. That customer's house isn't any dirtier than it was before. They're going to be upset because they thought they were paying $100.

Now they're paying $200. And you tell them, like, that's hourly, that's how we do it. Then they're going to push back on you. It's not my fault your cleaners are slow. It just opens the door for so much argumentation between you and the customers. So the flat fee works really well for us. We, you know, try to get people to work towards that model just because it's so consistent, so easy to forecast against, so easy to pay payroll against.

We're just paying you hours. You know, like if a cleaner calls out and we have to send a stand in and it took us a little bit longer, the customer's still paying the same. So that is what works for us. I mean, you can do it a hundred different ways. I just don't want to get stuck in a situation where we're charging people something different every week. Revenue is unpredictable.

That's the problem really for me is the unpredictable revenue. And I think another big issue thing that you brought up there was, it's hard to scale any business, for that matter, if you have too many variables and if the pricing is a huge variable, there's always so many things that could be this price or this price, or like you said, if another cleaner shows up, it's going to take longer.

So instead, you standardize that and then you accept the expectation for the customer and it's a much better experience, right? Because now they know this is how much it is. I don't have to guess or wonder, and I'm not going to get some huge bill and be like, in shock that it was $400 instead of $150 because it took way longer. And so that's what we're thinking of is what's the customer experience?

How can we best manage that, set those expectations, and then ultimately kind of works out in our favor? Because if you start at that price point, like Brandon said, you're going to maybe lose a little bit of money or break even. Your goal should be to break even on the front end, those first couple cleans. But the idea is you want that recurring revenue and that's when you really start generating those, the profit margins on the back.

You've gotten the clean up to that standard. The house is now clean and you're just maintaining that clean every single time you go back. So you actually get a little bit more efficient. You get a few minutes faster every time. If the same team's going back, especially, they're going to get to know the job notes, get to know with practice and repetition, they're going to get great and get even faster.

And it's just a matter of time. So even if paying the same rate and it's going down slightly, maybe the customer is going to be like, hey, why is it only taking an hour and a half now versus 2 hours? Well, you can explain the reason why. And, you know, ultimately they're still getting the same result, they're getting the same clean, everyone's still happy and it makes sense.

And so, yeah, I think that's why we've kept with it. The other models of doing it potentially could be confusing and it could have a bad experience for your customer. Right. So that's kind of why we do it and it works out really well. So model what works, guys. That's what we're all about is modeling. So, so if anyone needs help, you're more than welcome to come watch the Masterclass.

So profitcleaners.com masterclass we go over a lot of stuff in that video and then if you want to work with us, you buy that course. There's a whole module on pricing in there and I'm happy to jump on a one to one call with anyone to try and, you know, fine tune things for you. But you don't have to go to loan if that's the issue for you.

There's lots of help out there. Absolutely. And that's what it's all about, guys. Compress time, save yourself time. You don't have a lot of time. You're doing a million other things. So that's why we do what we do. That's why we have the coaching, the program that we have. Like Brandon said, once you guys are part of the tribe, you're in working with us, like, we will bend over backwards to help you guys.

Brandon hops on these pricing calls all the time with people one to one, and he literally goes through personally with you to dive into your numbers. Help you with the research, help you with all the things that we make this, you know, so effective, because if you start out correctly with your pricing, it makes everything so much easier. If your pricing profitably and that system's in place now, growing, getting more customers, being able to pay your teams, everything just gets so much easier.

So the values there, I mean, like we said at the beginning of this call, just these small changes, just knowing that these things and being able to implement your business could create massive changes in your business. So if you guys haven't invested in the program, the coaching, do it. It's totally worth it. People have. We were just on a coaching call today. A lot of our students are coming back from vacations.

They're traveling the world. They're doing these things they could never do because they have their time back. They have these systems in place. People are growing their revenues. It's amazing. So it's totally worth it, guys. I can say it personally, too. Like, anytime I've ever had a business modeled success, had a mentor teach me the ropes, learn from other people's mistakes. I think that's a quote from Warren Buffett.

He says, you can learn from your own mistakes, but it's better to learn from other people's mistakes. And it really is, guys, you got to save yourself the time and de risk the business a little bit more by doing things like that. So, yeah, I think that's pretty much it for the price increase, you know, jump in with us. We'll help you with your pricing. I think we're talking about maybe doing a pricing workshop at some point for more people on the outside of this, if you guys want to do that.

So keep a lookout for that. But like Brandon said, go watch the Masterclass. That's the best starting point for you guys on a lot of these issues, whether it's pricing, whether it's your training systems, whether it's your marketing systems. Like all these things we cover, we work on every week. We're constantly working on it, our own businesses. So, you know, let's do it together. Let's be on the journey together, guys.

So one more time, Brandon, tell them where to get the masterclass link if they want to jump on that. So it's profitcleaners.com masterclass. And then, you know, if there is interest in a pricing workshop, you can let us know by shooting us an email@hellofitcleaners.com. dot yeah, just let us know if you're interested, pop in the group and say, hey, I want a price workshop. We're working on putting one together to help you guys work through this, so.

But anyways, I think that was a great episode. You know, you guys got to learn a lot about our pricing update. Definitely made a huge dent in our profits in the last month, like Brandon said. So it works. Do it. Follow the method and the format and the strategy that we're talking about. And then if you guys want to, if you're still doing another type of pricing that's not square footage based, you know, reach out, talk to us.

We'd love to help you guys out and show you what the benefit of that would be for your business. So I think that's pretty much it. If you guys are getting value out of these podcasts, please hit the like button. Leave us a review. Actually, tell us, like, how is this affecting your life? How is this affecting your business? Are we changing anything? Are we inspiring you in any way?

I hope so. So please let us know. Reach out@hellofitcleaners.com and we'll see you guys on the next show. Until next time, keep it clean. Keep it clean. Thanks for joining us today. To get more info, including show notes, updates, trainings, and super cool free stuff, head over to profitcleaners.com. and remember, keep it clean.