Episode 45: More profits after customers flee your price rise

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Welcome to the Business Numbers podcast. I’m your host, Ben McAdam. I’m a profits coach, virtual CFO, and entrepreneur, and I’ve created this podcast to help you grow your business profits and understand your business numbers without judgment and without burying you in a whole bunch of jargon that you don’t need. Just actionable tips and case studies to help you grow your business. For show notes go to the website businessnumberspodcast.com. 

In an earlier episode I promised to share with you how you could still be more profitable even if customers flee your price rise. If you raise prices on existing customers and a whole bunch of them run away you can actually still be more profitable. And I usually go through this exercise with clients when that’s the thing that they need to do- they need to raise prices, but they’re reluctant to. Usually the big fear is that if you raise prices, your customers will leave and obviously that’s bad, right? Well, this is the exercise I walk them through and there’s a case study I will talk about on a later episode where one of my favorite clients went from in the red to over a $100k profit for the year from one phone call and this is one of the things I taught them on that call.

So let’s do the exercise. Let’s say that, to start with, you’re charging $100 to each of your hundred customers. So that’s $10,000 in revenue from those hundred customers that you’re charging a hundred dollars each, 10,000 revenue. That could be per year, per month, per week, per day, per hour, it doesn’t really matter what the time period is. You’ve got a hundred customers who pay you a hundred dollars each and that’s $10,000 of revenue. Then you take my advice and let’s say I’ve advised you to double your prices: “Double your prices”, and you do it. Now that’s $200, a hundred customers, that equals $20,000 revenue. So your revenue’s gone from 10,000 to 20,000. And now the thing that you’ve feared has happened: half of your customers run away, a massive portion of your customer base, they leave. So now it’s $200 x 50 clients. You’re back to $10,000 revenue again. Looks like your revenues are the same. You’ve been on an emotional roller coaster, you probably hate me, so why do this? Why bother doing all this? Well, here’s why: you’ve got half as many customers, which means half as much cost. Half as much cost to deliver the product or service that you’re offering. Half the customer service, half the effort on marketing sales, half your working hours, whatever. You get the idea is that you’ve got the same amount of revenue as you started with, but half of all those costs.

So you’ve had a dramatic loss of customers as you feared, but you’re actually more profitable than you were. Now, this doesn’t necessarily work for everybody. It doesn’t work for everybody, it doesn’t work for every scenario, but you don’t necessarily need to double it to achieve more profits. But the basic point is that if you get the balance right between how much you increase your price by, the percentage you increase your price versus the percentage of customers that leave because of that price rise, you can actually be better off if they leave. Now, I’ve written a whole blog post about this on my website that I send people to for further details, but the key I wanted to make sure you got today is that it’s okay if they leave because of a price rise. It can be useful to get rid of the price-conscious customers too, because they can be painful, and expect a lot, and complain a lot. But the main point here is besides all of that, there’s just the pure real numbers- if you double your prices, lose half your customers, you’ll be more profitable than you were. If your margins are very low, then you can actually dramatically increase your prices. And even if you lose a lot of customers, you can still be more profitable. If your margins are very good, then you probably don’t need to raise your prices. So the people who most need to raise their prices can afford to lose the most customers and still be more profitable with this method. Anyway, check out the full blog post, it’ll be in the show notes for this podcast episode, or you can go to “profitscollective lose customers” in your favorite search engine, which is… now that I think about a great place to send people to, googling my business. Just Google “profitscollective lose customers” and a blogpost will pop right up. So check out the full article, it has a simple way for you to check with your own numbers, the profit that you might get with the price rise you’re considering, and with different levels of losing clients you’ll be able to see how much better off you’ll be. And also included in the post are a whole bunch of tips to make a price rise smoother, and to make sure that, you know, if you do the price rise well -and I might do a case study on this, one of my clients did this really well- if you do a price rise well you will lose less customers.

Like giving them a bit of notice, all that kind of stuff, there’s quick tips in the blog post, as well as, like I said, a way for you to look up your numbers, the price rise you’re considering, and the amount of customers you think might run away because of it, and you can see how you’ll go with it.

If you have any questions about this or anything as always, you can reach out to me at businessnumberspodcast.com, go to the contact page.  Always happy to help. 

Thanks for listening to the Business Numbers podcast. Subscribe in iTunes, Stitcher, or on our website businessnumberspodcast.com. Also on the website is a free basic concept webinar and a contact form for submitting questions that you’d like me to answer on a future episode.

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