[My Biggest Mistake] Trying Not to Raise Prices

We all hate having to tell our customers that we’re raising prices. It’s not news they want to hear, and there’s always the possibility that they will start shopping around for a better price. But trying to hold prices year after year is not the answer. It isn’t realistic, and it can hurt your business in a big way. It took me a while to learn the following lesson: When you increase prices the right way — making incremental increases every so often instead of waiting so long that you have to ask for a real leap — customers tend to understand that you have cost-of-living increases just like they do, and they pay without too much pushback. It’s not good for your business or your relationships to let years pass before adjusting your prices. Inflation rolls on. And if your prices aren’t keeping up with it, you are essentially giving money away.
 

On-the-job Learning.

When I moved to Anchorage, Alaska, to take over Pied Piper Pest Control in 1992, I knew the business because I had run the company’s Fairbanks office for several years. I was confident about providing great service and building relationships, but I had a lot to learn about managing finances. The previous owner worked with me, explaining the importance of strategic pricing, but when it came to raising prices on customers — especially those who had been with us for a very long time — I hesitated. At one point, we went five years without an increase!

Then the inevitable happened: The company started struggling. Not only were our margins getting slimmer and slimmer, but a competitor moved in to aggressively pursue our customers. This company slashed prices to a level I couldn’t even think of matching; if my prices went any lower, I would be making no money at all.
 

Tough Decisions.

I knew I had to take a stand. I made sure that our technicians continued to provide exemplary service, and decided if we lost a customer or two to the competitor, it would be OK. If that company was willing to take a loss on their services to steal customers, then they could have them. (Incidentally, most of those who left for the lower price came back to us when they realized they weren’t getting the same high level of service we had provided.)

This is when I realized the importance of educating customers about the value they are getting. They need to realize that they’re not paying us for the time we’re physically spending in their home — by the hour, in other words. They are paying us for protection for a certain length of time. If the services we provide are offering them control for six months, they are getting more value than they would from a treatment that needs to be done monthly. The cost should be proportional to the value.

I began looking strategically at each account to determine where prices should be set. How much are we spending on materials for the job? How long does it take? What services are we providing? How frequently? This is the type of analysis I do for both residential and commercial accounts periodically now — typically every other year — before I initiate price increases. An across-the-board percentage hike doesn’t make sense to me. There are too many variables involved.

The following is a good example: We treat a lot of birch trees for aphids. A few years ago, the product we had been injecting into the ground around these trees was banned. We had only one alternative product, and using it multiplied our costs by 10. If we had held to a certain percentage increase across our entire customer base, we would have lost a ton of money. Instead, we explained the cost increase to the customers who needed this type of treatment and incorporated it into their fees. When you keep customers informed, they are much more likely to accept price increases, whether they are materials-related, as in this case, or simply to keep pace with inflation.
 

Selling on Service.

I’ve learned a lot about running a business over the past 23 years. And this year, as Pied Piper Pest Control celebrates 50 years in business, I smile when I think about my early struggles with pricing. Today I understand that the conversation should never be about price; it should be about value. We price our services as we do because that’s the only way we can be the best. Our customers aren’t looking at the price tag. They’re looking at the results we deliver.

As told to Donna DeFranco.