Cutting the "C.R.A.P." Business Model: Part I

June 1, 2012

It seemed so seductively simple all those many years ago. Since, as a mediocre high school student my high-end career prospects were basically zero, I’d just start my own business. (It didn’t help that I had no college degree, no special vocational skills and an ugly rebellious streak to boot!)

“There is nothing in the world that some man cannot make a little worse and sell a little cheaper…”  – John Ruskin


It seemed so seductively simple all those many years ago. Since, as a mediocre high school student my high-end career prospects were basically zero, I’d just start my own business. (It didn’t help that I had no college degree, no special vocational skills and an ugly rebellious streak to boot!) 

I had friends that were doing OK in carpet cleaning so why not me? So I bought a little portable extraction unit and an 18-year-old instant entrepreneur was born!

Then the ugly reality hit - my phone wasn’t ringing! No problem! Just call around, find the “going price” and then advertise it just a bit cheaper. (Sound familiar?) So that’s what I did and my “Cut Rate Advertised Price” (C.R.A.P.) business model worked! The calls rolled in, I did a decent job, and while I wasn’t getting rich, I was making more than I could as a bus boy in the local diner (which was my only other career option).

The years went by, a sweet young girl named “Sioux” caught my eye and we moved to our dream life in a small Colorado mountain community. I just repeated my same C.R.A.P. business model - advertise lower prices than the competition - and bingo! Just like magic, the phone started ringing. The rent on our one-bedroom cabin was $75 per month, a season ski pass was $165 and life was good!

But then reality intruded again. Two kids, a mortgage and the need for a growing business to profitably hire employees. Even worse, my competitors had now started doing the same C.R.A.P. marketing I had started with. So I learned an ugly truth - someone can always advertise a lower price than you can. Live by low price, die by low price.

I needed to dump my Cut Rate Advertised Price business model. The problem? Over the years, I had trained my customers to expect super low pricing. I literally was my own worst enemy!  But I broke free and went on to become the highest priced cleaner in my area and by far the most profitable. (When I sold my business we were grossing over $1.3-million per year in a market base of 30,000 people!)

So are you stuck in a Cut Rate Advertised Price (C.R.A.P.) business? Do you want to morph your company into a higher-priced operation based on delighted customer referrals? If so, here is my step-by-step guide to “Cutting the C.R.A.P.” marketing model out of your business…

  1. Get mad: I’m always reminded the famous movie scene in Network where Peter Finch screams out to a silent city, “I’m mad as hell and I’m not going to take it anymore!” Getting off your C.R.A.P. routine will take courage, resolve and time. Don’t start this process unless you are prepared to see it through.
  2. Prepare yourself emotionally and financially: When you raise prices you will lose clients (at least initially, they often come back). This customer loss can be a real downer! So before I raised my residential prices, I developed a route of regular contract commercial accounts. This predictable cash flow softened the financial blow of lost residential customers. In fact, we found our regular commercial work was actually more profitable than residential! (Contract commercial carpet cleaning went on to account for 30% of our gross volume.) But this article focuses on raising residential prices, commercial contracting is for another day.
  3. Consider “re-branding” your company: Cutting the C.R.A.P. business model is about much more than just raising your prices. You will also be changing your image, marketing and philosophy. So this is a good time to also change your logo, color schemes, uniforms, etc.
  4. Work your numbers: Don’t fall into the trap of making your business decisions based on emotions. Find out exactly what your true monthly cost of doing business actually is. (For an in-depth discussion on calculating business overhead, check out last month’s To Your Success.)  Then add in for your desired profit. (More is better - duh!) And include a comfortable cushion in your new prices for inevitably increasing overhead costs.
  5. Can you make more by increasing up-sells? Remember your ultimate goal is not to raise prices, it is to make more profit. Instead of arbitrarily raising prices, increasing your add-on sales is a much less adversarial way to grow profits. Carpet protector, deodorization, additional rooms and extra services like upholstery cleaning, garage floor restoration or deck renovation are all highly profitable. You should refocus on these up-sells no matter what your pricing is. However, you probably do need to raise your base prices for residential carpet cleaning. If so..
  6. Think carefully about how much: Start by referring back to step 4 and then round up. Less than 10% may not be worth your while. On the other hand, the sticker shock of a 30% or more price increase may put some clients into cardiac arrest! I find the sweet spot for many residential carpet cleaners is a 15-20% price increase. Hint: Add credibility to your pricing decision with an uneven percentage increase. Numbers like 18.3% or 22.3% simply sound more justifiable than rounding your price increase off to 15 or 20%!
  7. Just do it: But raise prices smart with your residential customers. After all, each one of them is precious. Here’s how to keep your “customer erosion” to a minimum:

  • Don’t broadcast your higher prices: When long time clients call to have their carpets cleaned again, pull their previous invoice and book the job without mentioning price.  Then after setting their date and time just say, “So Mrs. Jones, just to review, we’ll doing the same work as last year - your living room, dining room, hall and three bedroom open areas. Your appointment is set for Friday, June 3 at 9 a.m. and the price for everything we’ve discussed will be $248.80. By the way, do you have an outside water faucet available?” (Or bring up some other production detail.)
  • Keep quiet and wait for their answer on job logistics: Eighty percent or more of your clients either can’t remember how much you charged last time or simply don’t care. So detour them off into getting ready for your company. When they reply, “Yes, I was just watering the flowers this morning” silently rejoice because you just “cut the C.R.A.P.” with another customer! But occasionally they will say, “I don’t know. Isn’t that price more than the last time?” First of all…
  • Never stammer/justify and/or apologize: Instead, just smoothly reply, “Yes, Mrs. Jones, after maintaining the same pricing for (blank) years, on March 1 of this year we were forced to raise our prices by 18.3%. We put if off as long as we could!” The vast majority of your “pricing increase resistant” customers will now roll over and book with you.  After all, they know you, they trust your company and they’ve already made a substantial time investment on the phone with you. The only way for your client to get a return on their invested time? Go ahead and book the job! Now for those few home owners who still hesitate …
  • Become a concerned consultant: If your client is still price-increase-resistant simply say, “Let’s look at your last invoice and see what we can modify to stay within your projected budget. For example, I see we moved all the furniture in your family room last year. What if this year we left the large fixed items in place and cleaned all the open areas? Visually the carpets will look as if they were all cleaned and that will cut $31.40 from your bill…” By morphing into a consultant you give the home owner control and keep their business. (Many times when your crew arrives the client will have you clean the original areas at your new higher price regardless.)

To cut your “C.R.A.P. marketing” you will need to set yourself apart logistically and emotionally from your competition. In next month’s column let’s talk about you being different, as in how to become wealthy from the carpet cleaning industry.

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