Episode 50: What You Need to Know About Inflation + Price Increases

Episode 50: What You Need to Know About Inflation + Price Increases

Brandon Condrey:
So everyone's expecting a price increase. That's how the economy works, but not 60% over like a year. That's insane. So you have to be more measured out about it. I think the end result of this whole process was with our CFO. We've kind of agreed that we're going to revisit it every 18 months. And the customers are just going to expect that, Hey, we're doing like, it's like when you're at a big corporate job and you get a cost of living increase to your, to your salary, it's not really a raise because the cost of living went up, but it, so you can keep up. So your purchasing power stayed the same. We've told you guys so many times that you need to tell your customers why, the reason why, the reason why we charge you X amount of dollars is because there's three people that we do all this crazy stuff for cleaning. And it's amazing. But if you just told them like, yeah, we'll clean your house for 200 bucks, they're going to go, oh my God, the housekeeper across the street is $50. That's insane. But the housekeeper's not doing our stuff. So you're telling them why. So we were explaining.

Announcer:
Grow your cleaning business, make more money, have more time. This is the Profit Cleaners podcast with your host Brandon Condrey and Brandon Schoen.

Brandon Schoen:
Alright everyone welcome back to this module. We're going to be talking about price increases and why they work. And if you do them right, they work even better. So we're going to talk about what you could be doing to say the communication and wording and messaging a lot better than probably a lot of us would initially do. How often you should be increasing prices. And we're going to just review our letter. We're going to give you guys this letter at the end of the podcast and the episode here as well. So you guys have that to use in your cleaning business, feel free to change it up and use it to your own business. So it fits you, but let's tell them kinda what happened, Brandon the price increase. We've done this before, right? And it was a total disaster, but then going a little bit better.

Brandon Condrey:
And we'll give you the history on pricing increases. Yeah. So mentor Corby, right? Corby is very nervous about price increases. He thinks we should keep prices flat as long as possible. I think they may have done like two in like 10 years or something, which from a inflation standpoint, the goal of the federal trust is to keep inflation at 2%. So if you're not raising your prices 2%, every single year, you're losing money. So you're not being able to pay your employees more, which means they're losing purchasing power. And you, as the business are losing purchasing power because you don't have money to spend on equipment, which by and large, by average should be going up 2%. So we did one price increase when we started early on, we were just throwing spaghetti walls. Like, yeah, we'll charge this much for your house and this much for this house, whatever.

Brandon Schoen:
And we did another podcast on that one that was like right in the midst of the pandemic price increase.

Brandon Condrey:
Oh, that one was the fee I'm talking about. The one we did way back in the day. So when we started off brand spanking, new pricing was all over the place we were trying to hone in on the market. We eventually honed in on the market. And what I wanted to do was I was insistent on was I wanted everyone at the same square footage level to be paying the exact same. So it was easy to forecast stuff. Well, what that ended up happening was some people ended up getting like a 40% price increase. So we sent out that letter, we got feedback there wasn't enough time to think about it, whatever.

Brandon Schoen:
People were really upset because we let them know last minute, like you said, some people were like 40%.

Brandon Condrey:
Yeah, sorry. You had a sweetheart deal in the beginning, but we got to adjust for the market. What ended up happening was we lost something like 22% of the people that got the letter, which wasn't great, but it was absorbable. We only had like a hundred customers at the time. Well, and it only went out to a portion of it because we had tested the new pricing, the market pricing, and that was happening for new customers who were liking it. So now we were going to go back and retroactively apply it to everyone who'd been on since the beginning. Right. So 22% of those people canceled, but we learned some things. Yeah. Then the pandemic happened, we did a whole thing about that. We did a temporary fee. That was for COVID safe practices. We talked about that and that covered gloves and testing and things like that. Right. Well now maybe the tail end of the book, de-mic like, it's going down a little bit. Yeah. This is September 2021 now. And just did so depending on where you are in the country, it's either the worst it's been or it's totally fine, but either way, what we did there were after the pandemic. Well, now we need to actually adjust prices. So things from a economic demand, shock and supply shock have not really adjusted. So like our gloves are still super expensive. We're still paying sick pay. We're still having to wear masks inside the houses. So things that we thought would adjust over time, have it. So we needed to make some changes. Permanently gas was a big one for us.

Brandon Schoen:
And our last like overall price increase in general was like 18 months or two years before that.

Brandon Condrey:
So the only one that we did is that first one that happened in, I want to say that was early 2018 or maybe mid 2018 was like a year after lido. So we were originally planning on doing a scheduled price increase in the summer of 2020, which we held off for obvious reasons. It was 2020, it was chaos. And we didn't want to be looking like we were trying to take advantage of people during a pandemic because people were cleaning. It was the CDC recommended cleaning, but we got out of that part. Now we have to actually make this price adjustment for the longevity of the business. So do the thing we'll share with you down below in the resources is I'll give you the price increase research that we did. So we have always been advocates of a flat fee based square footage pricing, which we still are. But when it came to the increase, we kind of did like a 20, 80 analysis on our actual customers. So we went back for three months of real data, the houses that were below 1500 square feet or smaller, we're like 8% of our revenue. The houses that were above 3000 square feet were 15%. And literally everything else was between 1500 and 3000 square feet. So that's our bread and butter zone. That's where all the customers are in that band in the middle. So we didn't want to squeeze them too hard cause we didn't want to make them upset. So what we did was the big houses tend to be more affluent people of our customer base and they can absorb a small price increase. So their price increase on a percentage basis was higher than what was in the middle. The ones that had the smallest price increase with the littlest houses. So we didn't want to give a $10 price increase for those houses. There were a thousand square feet. That's huge because they were only paying a hundred bucks to begin with. So what we did was they got the smallest one middle gut, I think, I mean, it was double digits. It was like 12% I think is where we kind of landed. But it ended up adding 120 grand to the top line of revenue overnight, as soon as we made those applications to the price increase within service fusion. Yeah.

Brandon Schoen:
So yeah, definitely. It was a success. I would say how many people did our office staff say that actually called up and canceled it and were like, you can't believe this is happening.

Brandon Condrey:
That email went out to something like 1500 active customers and service fusion. That includes people that only got one time services in the last year. I think in the end we lost something like 25 people, not 25%, 25 customers. And some of the ones that cost that dropped off first have already come back. Those people were like, this is ridiculous. And they went out and tried to get somewhere else. They found out that a, our pricing wasn't ridiculous. We were correct for the market. We didn't just apply some number to it thinking that this is how it's going to work out. We called competitors to see what they were charging for the same services. And that's how we kind of worked this all out. So we'll share that background data on it.

Brandon Schoen:
And we actually had our sales guy call like all of the competitors. And he came back saying, actually guys, we're still kind of under the market. We're actually not even above the market. Even to these new prices.

Brandon Condrey:
Part of that research is actually one of the biggest changes we made was one time services and move in, move out cleans. We upped those by 40%, we increased the pricing on those 40% because we were so far below market that we were just leaving money on the table. And we always try to tell you that you can always convert someone to a recurring customer, including move in move outs. But by and large, we weren't seeing that in the data, especially if they were moving out of state, that's a one-time thing and you're gone. So like you are contractually obligated to get that cleaning. We're going to be getting as much as we can out of it because you're going to do it anyway. And if we're not going to do it for you, you're going to go find someone else. Who's going to charge a lot of money to do it. So, yeah, That was huge.

Brandon Schoen:
But yeah, so we had very little pushback and again, I want to reiterate, it was very much how we did this, how we rolled it out, how we planned it, how we messaged the customers, because it's all how you say things, right. Not just what you say about how you say it. So we're going to read the letter a little or some of the highlights of it, but just so you guys know, like a lot of people are very uncomfortable raising prices, but just so I know it is something you need to build into your business plan. Whether it's every year, every two years, I know some of the big franchises from our customers that tell us this multiple times per year, per year, that big increases, which is not what.

Brandon Condrey:
We had, there was one year where one of the big franchises in town did two price increases that year and they were both 30%. So it was like 30% in February and 30% in September when they did that second 30% increase. We got like 25 customers that week because they were so upset at how much they didn't. It's not that they're not expecting a price increase. Everyone's expecting a price increase. That's how the economy works, but not 60% over like a year. That's insane. So you have to be more measured out about it. I think the end result of this whole process was with our CFO. We've agreed that we're going to revisit it every 18 months. And the customers are just expect that, Hey, we're doing like, it's like when you're at a big corporate job and you get a cost of living increase to your salary, it's not really a raise because the cost of living went up, but it's so you can keep up. So your purchasing power stayed the same. So you get paid 50 grand next year. Your cost of living increase was 1.6%. And that is exactly what inflation was that year. And that's what they're doing is to help you keep up with it.

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Brandon Condrey:
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Brandon Schoen:
So I think right before we jump in, I just want to touch on one of the things we decided we would do better. Next time is we did this just by sending out an email to our customer reviews. One of our team meetings we were discussing with Matt, our sales guy, he was getting a little bit more pushback on, Hey, I didn't get the message. I didn't. He was like, we sent the email out, but he's right. Some people just don't check emails.

Brandon Condrey:
I hate email. I get so many emails a day. It's insane. So right. What we agreed next time is that we're going to text. So we're going to send the email out to everybody. And then when they get their normal automated reminder text, they'll just be a little line in there that says, Hey, we sent you an important message by email on July 3rd, here's the subject line. So people could actually go out and find it. We actually had a website. I think that we also linked to it that they could follow from the email or it'll explain it on this website. Also, you can put that link in the text, but the idea is you got to hit them up two ways. So we hit them up by email. The first time we did the price increase, we actually left printed letters in everybody's house. They kind of explained it. And that might've been why we lost more cussing. We over communicated it so digitally once and then digitally twice with a text that should be enough for people. We ended up going a month before we took stock of who canceled because there were monthly customers that wouldn't have seen the price increase until a month after we sent that email out. And we did get some people to drop off after a month. And that's because they didn't see the email, they didn't see the price increase until they checked their credit card statement. Yeah. And so part of that is just people. If you're gonna ignore your email, like important stuff comes by email. I have definitely let important things slip through the crack, but it's just because I hate email.

Brandon Schoen:
Yeah. I think we'll do that better next time. But overall I think the way we did it this time people received it. Well, the messaging was really great. So let's just read over some of those parts of the email. So we'll give you guys this letter in the show notes of the podcast. So you can read the whole thing and download it and use it for your business as well. But yeah, let's just touch on some of those. Why do you think this works so well, Brandon?

Brandon Condrey:
Because you're communicating, like we've told you guys so many times that you need to tell your customers and the reason why, the reason why we charge you X amount of dollars is because there's three people that we do all this crazy stuff for cleaning. And it's amazing. But if you just told them like, yeah, we'll clean your house for 200 bucks, they're going to go, oh my God, the housekeeper across the street is $50. That's insane. But the housekeeper's not doing our stuff. So you're telling them why. So we were explaining.

Brandon Schoen:
Let's just tell them a few of the bullets here with a small price adjustment. We were able to.

Brandon Condrey:
Yeah. Continuing hiring the best cleaners in town and paying them a fair and living wage. That was huge during the pandemic. Because as we're trying to bring on more cleaners at our old starting rate of 11.50 an hour, there were every fast food restaurant in town was hiring at 15 bucks. Walgreens was hiring at 15 bucks. Best buy is hiring at 15 bucks. So cleaning is hard. Like you have to make it worth it. So we were able to do a big wage increase for all the cleaners based on seniority, after a result of this. But you were explaining that like, look, this is extenuating circumstances. And I guarantee you, every single one of our customers had seen one of those signs, the drive-through that said we're short staffed, be patient with us, whatever. So they know that the market is hard.

Brandon Schoen:
Yeah, absolutely. People were mentally prepared for this already. So another item we brought up was expand our services to new customers and the Albuquerque and surrounding area while offering advanced professional training to each employee that helps keep homes and the families who live in them safe.

Brandon Condrey:
So that's kind of a way to touch on COVID shenanigans without being super negative about COVID like, we're still in the middle of COVID. They still have to wear a mask. We're still sanitizing equipment, but that's just a way to explain to them like, yeah, we have to do this because gloves didn't get cheaper. Sanitizer, didn't get cheaper. We still have to buy all that stuff to keep you guys safe, but we need to make this adjustment to make sure that we can keep going.

Brandon Schoen:
Absolutely. And then the last one in the middle here was the offer superior services out, forming the franchises that refuse to offer detailed cleans, quality customer service and employee background screenings that are so important to our committee.

Brandon Condrey:
Yep. So let's just reiterating some of the things that we do better than the other ones around town. And then a little bit further down this letter, we kind of touched on some things that they helped us do during 2020, this was a price increase on top of the fees. So what we basically did is we took the COVID fee. We made it permanent. It's rolled into that pricing. And then that percentage was on top of the COVID fee. So this was a serious like jolt for some people, but not enough for them to like jump ship clearly. Cause we didn't lose that money. So we had kind of gone over it and said, because of you, we managed to keep our entire staff employed throughout 2020. And this year, in fact, we actually grew from 25 employees to 35 and that's all true. So we expanded during 2020, we grew during 2020, we never laid off a single person.

Brandon Schoen:
Yeah. And we're making the customer feel like they're part of that. You're helping us win. People love helping out local businesses in the first place, but make them feel part of that story. Like you guys are helping us stay in business. And even if it was like a little extra money on their bill, people are like, okay, but it's worth it to save the local business to help the community. And that's what we wanted to resonate in this message as well.

Brandon Condrey:
Yeah. The rest of the letter is just reiterating how awesome our customers are. We haven't done a blanket price increase for existing customers since 2018. So this was like three years after the fact. And we also, the other thing that we did that, I mean, people don't know, but we did this price increase for the existing customers. And then we also bumped up that price increased by 5%, whatever those tiers were, we added 5% to it for new customers. So anyone that came on new is already paying more than the existing customers. And the nice thing is is if someone bounces, cause they want to go try someone else, they tried it. They came back when I have to pay 5% more than when you were here before, because that's what it is for new customers. And you left.

Brandon Schoen:
Yeah, absolutely. And I was actually noticing just a lot of things in general and the economy and even just like used cars and most things are up about 10 or 15%. Some things more than that, a lot more, but landed in the range. I want to say like 10 to 15% is what the average.

Brandon Condrey:
I think overall it averaged out to 15% across the board. It's not just a one year increase. We didn't do a 15% increase year over year. This is from 2018, from 2018. It went up 15%. So yeah, that's just the way it is. Like you have to keep up with inflation and inflation is a good thing in an economy. If it's at a controlled level, if inflation at the government levels, 30%, we've got something seriously wrong happening on the background. But keeping it like over 2020, I think it peaked from a month to month thing. Like at 8% that's a lot. But they had economists that said that that was going to be a temporary thing. As we all recover from supply and demand shock. And that is happening. Inflation is dropping and things like lumber, which was one of those ones that got super crazy expensive, started to come down. So you just like, this is one of those things. Like I know that you're not an economist, I'm not an economist, but you need to keep up with this stuff. And so the big one that everyone tracks is the consumer price index, the CPI that's freely available. You just look that up and see what it changed. You can put in a date over here and a date over here to end with it. It'll show you how much has changed over that time. 2% is what it should be. But the idea is you want to be looking at this periodically. If inflation suddenly went up by 8% and you weren't keeping your eye on the ball, that means that your cost to provide your service also went up by quite a bit because of the supplies that you need to buy or in our case with the labor market and probably your case to the wages went up because the part of the people, this is what happened during the pandemic. You had to raise wages to keep pieces. Otherwise everyone's going to go work from Amazon and you're not going to have any employees.

Brandon Schoen:
Absolutely. So again, guys, this is all just to help you in your business right now because you got to keep up what's going on in the world and economy and stay like Brandon was saying, keep up with the pace of everything so that you're proactively meeting the market where it's at. You're not falling behind in the market's moving on ahead of you. So this is just one of those things that you should definitely build into your business, increase prices from time to time, but more importantly, tell people why and do it in a way that resonates with people that they don't feel like you're just blowing them off or just telling them really quickly, we're going to increase prices and then get out of here real quick. Sure. You really want to make sure you feel like they're cared about you're really communicating to them. And like we said, well, next time we're going to send out a text as well on top of the email to make it even more well received, I guess, from people that don't check emails. But otherwise I think it went really well. I was really, really happy with the results. And I think everyone on the team was surprised. Cause every time we do this, so it gets a little bit like nervous, but.

Brandon Condrey:
There's like another component to it too. Because in the letter we didn't spell out specifically, your price is going to go up by X because it was different depending on what size of house you have. So the letter kind of left it vague saying that prices were going up. So what happened is their office did get phone calls from people that wanted to know what's my price going to like, let her just says, it's going. So you tell them I could go from this to this to sometimes they have follow up questions. Like, well, why, why this? And we had actually written out a bunch of rebuttals for the staff to have. So if someone asks about this, make sure you touch on these points when you reply, we'll give you that too. So you'll have three things. You'll have the letter, the rebuttals that we had prepped the office with and our price increase research data. So that's our market, but you can take the math and work at however you want to on your own.

Brandon Schoen:
So yeah, guys hope this helps. So you guys get some insight. If you are getting some knowledge and insight, it changed our perspective. Maybe we helped you out and made you laugh. Whatever it might be, please hit subscribe like this podcast. If you're on YouTube, hit the like button, whatever it is and leave us a review guys, we really, really thrive on you guys sharing it out to the world. If we're helping you, giving you any value, please review and let us know how we're impacting your business or your life. And that's how we pay it forward. We're not charging for ads or other things on these shows for you guys. So just please do your part and share it out. And until next time, keep it clean.

Brandon Condrey:
Keep it clean.

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