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Considering a Price Increase? Expect to Lose Some Clients!

The fact is that I feel that telling a story is perhaps one of the best ways to convey a message. Today I’ll tell you a story about the time that we decided to increase our prices, and how it ALL played out. I might even throw in a little math.

A Little Bit of Background

We had 4 teams working full-time and another 2 teams that worked part-time, as needed. Our goal was growth and we wanted to add 2 full-time teams to the schedule and eliminate our part-time positions.

In order to reach the goal, we would need to add approximately 90 net new clients to our recurring schedule. This would ensure that we had full time work for all of our teams.  Once we had a good grasp of our goals and a solid recurring client pipeline, we decided that it was time – We had to raise our prices.

[alert color=”blue” icon=””]We shouldn’t lose sight that in today’s customer-driven economy…

86% of U.S. adults are willing to pay more for a better customer experience.  Not only will brands get happy, loyal customers but will see increased business. – RightNow Technologies 2011 Customer Experience Report[/alert]

The Steps We Took

  •  We had several clients that were on the chopping block – you know the ones, they cancel all the time, and always at the very last minute.  They are a waste of time and money.  We took note of those and re-sent them our Terms of Service so that they’d fully understand that we would be charging them lock-out or cancellation fees moving forward.

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If you don’t have a terms of service in policy in place, you can download our template and customize it for your own field service business.

  •  We evaluated all of our current clients to see if there were any price adjustments needed and found that a handful of clients were underpaying. These are the clients that we quoted low when we were slow, or they (in some way, shape, or form) managed to haggle us for a good deal. Ha!  But no longer!
  • We increased our hourly rate for net new clients by $5 an hour.

The Outcome

  • We lost 3 long-term clients over an increase of less than $20 per cleaning. They had all been loyal for more than 2 years, rarely had any cancellations or complaints, and always paid in full at the time of service. Although our profit margin on a single job was very low, they were good clients. They helped to keep the schedule full and they ensured that we had enough work for our teams. Now we needed to add 93 net new clients!
  • We decided to stop the price increase on our current recurring clients.
  • We gave our regular call-in clients their regular prices if they asked, but we turned the conversation on them as well. We *really* pushed our regular call-in clients to get on the recurring schedule.

We sold sporadic, call-in clients on all the benefits of becoming a recurring client:

  • Lower rates for recurring services
  • Same team for each service
  • Discounts on upgrades
  • No contract

Change can be difficult for everyone involved. Most of our call-in clients were pretty happy with getting service as needed, and didn’t mind paying a little extra, while others were delighted with the concept of having the same team and a set schedule. It was hard for us in the office too, I had grown accustomed to the price offerings, as well as the math that went along with it.

All in all the price increase was a great learning experience. We realized that we should have let our long term, underpaying clients remain just that. Luckily we only lost 3 clients to learn our lesson. The lifetime value is so much more important in the long run.

The increase from $60 to $65 an hour was not a huge increase, but it made a big difference in two ways…

  • Our maid teams got a raise on all clients with the new pricing structure. Since we pay our teams based on a percentage of the overall job cost, the price increase amounted to an average of a $1/hr wage increase.  Making a better wage equals happier employees, equals less turnover, equals better service.
  • It increased our overall revenue substantially. Had we kept up with the $60 an hour pricing structure with our 300+ recurring clients we would be making about $2,000 less per week, which adds up in the course of a year to right around $100,000. Suddenly $5 isn’t looking like pocket change!

Maybe it’s a good time to raise your prices!