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In this podcast, I'm going to give you a couple quick tips on pricing that will make you more

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money if you just do the stuff that I outlined in this podcast. Enjoy. Have something extremely

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expensive to sell that you never even plan on selling. I learned about this anchoring tactic

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from a friend of mine and he said, listen, man, you can just put something on your menu of items

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or services that you sell that's 10 or 100 times more expensive. And just by having it there,

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it'll anchor everything else on your menu or the rest of the prices that you have.

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And just make it something that if someone actually bought it, you'd be stoked that they did.

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But what ends up happening is that one, you'll sell more people on your core offer because they

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have this big price anchor. Second, it allows you to nudge up your main offers price because

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related to the big one, it looks like almost nothing. I was talking to a different friend of mine

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and I said, hey, you know, you should consider just adding one of these things in and he had a

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weight loss business, a very generic online weight loss business. And so he added a six times

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higher price version of his offer. And then the craziest thing happened. People started buying that

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more than his core offer. And when he did that, he tripled his profit overnight. And so the thing

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is that it also breaks you, especially if you're starting in business out of this fear of raising

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prices by just saying, hey, there's no, there's no way anyone's going to buy this. I'm going to make

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this so expensive, no one's going to buy it. And that's okay. So you give yourself permission to just

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fly it out there. But what you will find is that 10% of customers just want to buy the most expensive

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thing. These are the whales. And the only thing worse than making a $1,000 offer to somebody with a

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$100 budget is making a $100 offer to someone with a $1,000 budget. Because in the first scenario,

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you lose $100. In the second scenario, you lose $900 of the money that you should have made,

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but didn't. Raising prices almost always makes you more money, but you hear no more often.

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And so let me break this down. So I had a sales guy in one of our portfolio companies,

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and we doubled the price of our products. So a lot of people are really afraid of 10% or 20%

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increases, like I'll test 4x, 5x prices differences. Pricing in many instances is far more

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inelastic than you think it is. All right, so elastic versus inelastic pricing. I'm not going to

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get into that. But basically, if you have a $5 sandwich going to $10 sandwich, there's a lot of

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less to do with food, meaning people are very responsive to small increases in price. The classic

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counter example is if you have a life-saving medication, it's not very elastic at all. Meaning,

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if you double the price, people still are going to pay for it because they need to live, right?

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And so the thing is is that if you have a very bobble thing, the price is usually a lot more flexible

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than you think it is in terms of how much you can move it up. All right, and so I like making

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massive price tests. But the thing that you have to have when you do this is the balls or the

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stomach to deal with more nose. And so when I walked that sales team through the price increase,

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I said, hey, we're going to double the price. I said, you have to understand that we're for sure

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going to get less or fewer yeses. But the question is, will we get half the yeses? So we had a

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35% reduction in conversion percentage, but we doubled the price. And so we made more money

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in multiple ways. So one, we made more absolute revenue. We literally just made more top line.

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But the magic of this is that let's say the cost of our thing was $500 and we sold the thing

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for $1,000. Okay, so we have 50% margins. Well, if we double the price, we go for making $500

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in profit to $1,500 in profit. So I actually triple the amount of money I make by doubling my price.

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And so even if I have a 35% reduction or a one-third reduction in sales, I tripled how much

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money I made on the other two thirds of my sales, which means me doubling the price with a one-third

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reduction in sales still doubled the profit in absolute amounts despite selling one-third fewer

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customers. And one of the nice benefits of having fewer customers is that you have fewer costs

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associated with delivering on them. So not only is the gross margin per customer higher your fixed

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costs that you have to incur to continue to expand your infrastructure go down. And fundamentally,

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a smaller amount of customers that make more money is an easier business to run than more

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customers that make you less money. And let me tell you how important this is because this is

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specifically from all my 40 plus business owners. All right, so if you're 40 years older,

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higher, you tend to be more receptive to this concept. All right, I've seen businesses that have

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not changed their prices for five, six, seven years, right, because they're afraid to do it whatever.

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But I want to give you some real hard truth right now. In 2017, if you sold something for $100,

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that was your only product, and you were running 20% margins as a business. If you did not change your

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price from 2017 until 2024, that $100 now means that your costs in that business have gone up by 20%,

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which means that your profit is now zero. And so if you feel like your margins continue to compress

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your after year after year, it's usually because you're not appropriately adjusting your prices.

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So to give you context, $79 in 2017 is the equivalent of $100 today. And so that would be like

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you going back in time where you had a 20% margin business and running it at a $79 price point

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rather than a $100 price point. And so you just like that eliminate all the profit in the business.

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And so you have to do the reverse of that because inflation is a compounding

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threat to your business that every year stacks on top of itself. And so if you're not making

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$36% increases in prices at least annually, you're not even keeping up with inflation.

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And to give you a little story around this, Warren Buffett when he bought these candies

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said that he only wanted to control one thing. And so what that one thing was is that every year,

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he would look at all the prices of all the candies and he would ship them the new pricing.

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And he has raised prices 50 years in a row, sometimes in a single year is high 17%

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on to their pricing. And as a result of that, he's cleared himself a billion dollars

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in profit. And so if it was the one thing that he focused so hard on, it might be something

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worth thinking about. So if you do make a pricing change, there's two components to this.

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One is new customers, the other is old customers. The easiest thing to do is just change the

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price and just apply it to everyone who's new. That's simple. And if you're in a transactional

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business, then it's fine. Even because the old customers come back and buy again. But if someone's

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on some sort of recurring service is a little bit trickier. Now, I have some tactics around this,

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but I'll just give you the high levels, which is you want to have a price increase letter,

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you want to talk about all the things that they're going to get as a result of the investment

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that you're now making into the business and that it's the only way that you'll be able to stay

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in business, give an inflationary pressures, etc. And so you just want to say, here's the thing,

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here's the stuff you're going to get. I want to keep my promise to you, which is to keep our

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thing as good as possible. And only way for me to ethically keep my promise is for us to reflect

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that in the prices, which are now having to be changed effective this date. But don't worry,

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I've grandfathered you in to your old price by this time. That's key is that the old customers,

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you say, I've grant everyone wants to be grandfathered. You say, so I'm grandfathering you in until

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this date. And that way it's not like it's changing tomorrow. It's delaying the pain and giving

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them a gift right now as a way of honoring the fact that they've been loyal customers to you.

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Those are the main bullets of what that price letter would go out and say. And if you are going to

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raise your prices, you want to be measured about it. You should know what your conversion rates are

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prior to you making the price change and you should be able to give a statistically significant

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sample size of shots on goal with the new price before you make a decision. If you get on the phone

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and the first two people say no, well, we won. New more people are going to say no. We already

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expected that. And if you have call it 40% close rates right now, well, if you make double the price

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and you go to 30% close rates, then that's still a great deal for you. You might just be getting the

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first two nose out of the seven nose. You already know you're going to get when you talk to 10 people.

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And so talking to two or three people getting nose doesn't mean you need to change your price. It

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might have just been the nose you're normally going to get even at your lower price. And so you

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can't be emotional about this. You have to be calculated. And this in my opinion is the reason most

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people don't raise their prices or can't do it successfully.