Episode 21: I’ve Never Raised My Prices

Guests:

Dana White is founder and CEO of Paralee Boyd hair salons.

Karen Clark Cole is co-founder and CEO of Blink.

Jay Goltz is founder and CEO of Artists Frame Service and Jayson Home.

Producer:

Jess Thoubboron is founder of Blank Word Productions.

Episode Highlights:

Jay Goltz: “I am confident there are far more people who have priced themselves out of business by not charging enough, than those who raised them too much and became uncompetitive.”

Dana White: “If I raise my prices, is this the decision that’s going to make me close my doors?”

Karen Clark Cole: “I’m totally fine not being the cheapest one in the room. In fact, if we are, then we need to raise our rates.”

Full Episode Transcript:

Loren Feldman:
I want to start today by talking about pricing. I really think this is a topic that gets short shrift. It’s so important, yet it’s rarely discussed, and I think there’s a lot of confusion about the right way to approach it. First of all, what I’d like to do is to start by asking each of you: when was the last time you raised your prices? Dana, why don’t you go first?

Dana White:
I’ve never raised my prices.

Loren Feldman:
Have you been in business since?

Dana White:
Seven years, since 2012. In 2020 of November, this will be my eighth year, and that is going to change in the eighth year of being in business. It’s time for me to raise my prices absolutely.

Loren Feldman:
Karen, how about you? When was the last time you raised your prices?

Karen Clark Cole:
We evaluate it every year, so probably last year officially. The thing with us is we work on fixed bid, and so in a lot of cases—

Loren Feldman:
What does that mean, “fixed bid”?

Karen Clark Cole:
It means that we give you a price and that’s what it will cost. On a project basis, there’s a period of time where the project starts and then it ends. Time and materials would be that we just bill you by the hour and however long it takes is what it’s going to cost, but we give an estimate upfront and then actually turn it into a fixed fee price. That gives us some wiggle room on pricing within that. Some clients need a break and others don’t. What we call “value billing” is what we do in a lot of cases based on the kind of work that we’re doing within that project, so it’s a vague answer, but our rates are a bit fluid.

Loren Feldman:
If you make the decision to raise your rates, how do you do it? Does that mean that your hourly rate increases? What changes?

Karen Clark Cole:
Yeah, all of our fixed fees are based on an hourly rate to start with.

Loren Feldman:
Got it. How about you, Jay?

Jay Goltz:
I do it regularly, and I’ve learned over the years that pricing is like emotional eating. There’s emotional pricing, and it’s bad. “Oh my god, I don’t want to charge any more, the competition’s out there.” And at the end of the day, there’s a price that you have to charge to make money. It’s very difficult to raise prices, but it’s necessary, and what happens is—and I’ve been through this numerous times—you get into a recession, you’re losing customers, you’re freaked out, the last thing you want to do is make it worse and raise prices, and then the economy comes back a little bit and you’re slow to adjust the pricing and it kills you.

People talk about competition, they talk about it’s hard to hire people, they talk about banks. Pricing is a critical piece to making money.

Loren Feldman:
Where are you in your cycle? When was the last time you raised and what’s your thinking at the moment?

Jay Goltz:
I adjust them regularly because the material costs keep going up. I’ve done speeches to the salon industry, and one of the problems in the salon industry is you don’t have a cost of goods sold to speak of, other than the people working there, so it’s not as easy.

With me, if the molding price goes up, the glass price goes up, we mark it up, and it automatically raises the price. Minimum wage has gone up $1 an hour every year for the last four years. We’re paying sick days now that we didn’t use to pay, health insurance is out of control, the labor market is so tight. Our labor costs are just going up like crazy and I’ve got to change my formulas. My real estate taxes have just gone up dramatically. Those weren’t in the quote unquote formula. If the molding goes up, you raise the price, but nowhere in my pricing formula is, “We need to charge X percent for the real estate taxes.”

It’s an extremely challenging problem, and it’s very emotional. You’re afraid of, “Well, I don’t want to price myself out of the market.” Unfortunately, what happens is people price themselves out of business because they just don’t charge enough. It’s a huge thing for me because I’m manufacturing custom picture framing. It’s a manufacturing business. It’s also a retail business. It’s also a direct sales online business. I have to come up with pricing that works in all these different arenas.

Loren Feldman:
Let’s go back to you, Dana. How did you think originally about pricing? What were you considering when you made the decision what you wanted to charge?

Dana White:
I considered what my competition was charging and then I looked at what would make me different and what my guests would be getting in the salon. Then I also thought about, how much do I need to make a week to cover the bills? Or a day? Once I did that, I had a sweet spot of boom: $40 per head.

Loren Feldman:
When you looked at the competition, were you looking to price to compete with that competition? Or were you thinking, “We provide a better service so we can charge more than the competition”?

Dana White:
Both. I was looking to compete. What I didn’t want a guest to say is, “Although it’s nice, I don’t want to go there because it’s too expensive.” I thought, let’s price competitively. I didn’t want price to be an issue for them as a deciding factor of whether to come to my salons or to the competition or to their personal hairstylist.

Loren Feldman:
How can you both not price yourself above the competition, but also try to charge for a superior service?

Dana White:
That’s a great question. I think it’s because there’s not really any direct competition. There aren’t any other walk-in only hair salons in the area. The one that’s similar is very different, if that makes any sense. They’re not very deliberate about some of the things that we’re deliberate about.

I think when I first opened, instead of saying, “You’re going to pay for all that,” we’re going to price slightly higher, but not so high that you’re like, “You know what, I’d rather go over here because it’s cheaper and they may not be in the best area, and they may not be very deliberate about customer service or anything else for that matter, but the price is so different, that I’m just going to stick over here in this area.” I said, “No, just raise it slightly above, but also make sure you can pay your bills every week or day,” and then yeah, that was pretty much it.

Jay Goltz:
Here’s the issue that is a rookie mistake. It’s called “price elasticity.” The fact of the matter is, there will always be someone who isn’t going to come to your business because your price is too high, even if it isn’t too high. The question is, if you raise your prices 10%, are you going to lose 10% of your business? Are you going to lose 30% of your business?

The answer is, the definition of price elasticity is, whether you lose more business when you raise your price 10%. If you lose more than 10%, then it isn’t elastic, versus you lose less than 10%. The answer is, in most businesses, you’re not going to lose as much as you raise the price, which means you’re gonna make more money, because even if you raise prices 10% and you lose 10% of your business, you’re going to make more money now because you’ve got less labor and materials.

Dana White:
You know it’s time to raise your prices when your customers say it’s time to raise your prices.

Loren Feldman:
That seems like a really good sign.

Dana White:
Yeah, when they say pretty overwhelmingly, “Dana, you know, it’s time.” We’re going to be doing that this year.

Loren Feldman:
Why not this week, if your customers are asking you to do it?

Dana White:
Because I want to do it correctly, and in my opinion with my customers, you have to tell them and give them time. You can’t change it tomorrow and send out an email, and then when they come in Saturday, they say—

Loren Feldman:
But they’re asking you to raise your prices!

Dana White:
I mean, not 100% of them, but enough of them are to where [I’m like], “Okay, we’ll do it.” We’re going to do it in a short email campaign, we’re going to give them enough time. Because there are some people who are going to need a heads up, especially people who have memberships. They have to plan for it. I would prefer to give it a little bit of time to communicate, let it sink in.

There are people, like Jay said, regardless of how much you raise your prices, the fact that you’re raising them, it’s going to be too expensive. We’ve had people squabble with us over $5. Jay, I think you may understand this. The beauty business is very emotional. I think it’s more emotional than a cup of coffee. That’s another reason why I don’t want to do it quickly. I want to mitigate the drama, if you will.

Jay Goltz:
Well, it’s also more transparent. If I raise my prices 5%, every picture is different. No one’s going to necessarily go, “Oh my God!” They don’t know because the last one was an eight by 10 and the new one’s a 16 by 20. In your case, they know they paid 40 bucks last time and now it’s $42 or $50 or whatever it is, so you can’t hide from it. And number two is, you get the same customers every single month. I might not see a customer for five years.

Dana White:
Exactly.

Karen Clark Cole:
Yeah, that’s the same for us in that we have a lot of repeat customers, but every single project is different. Every time we’re pricing something, it’s a one-off, and so it’s very hard to compare.

Loren Feldman:
So you can raise your prices without anybody even realizing it.

Karen Clark Cole:
Yes, effectively.

Jay Goltz:
I am confident there are far more people who have priced themselves out of business by not charging enough, than those who raised them too much and became uncompetitive. I’m extremely confident of that because I’ve watched it happen so many times.

Dana White:
I agree.

Loren Feldman:
Jay, what do you do when you raise your prices? Do you tell anybody anything?

Jay Goltz:
No, every time, it’s a custom quote. Look, there are 20 different reasons why they come to your store. Some of them are more important than others: location, parking, does your person know what they’re doing? But the only one you ever hear about is, “Boy, that’s a lot of money.” So get over it, they’re going to complain about the price no matter what you charge.

I had a customer come in—it was $320—and she says to my sales consultant, “Wow, that’s a lot more than the other place I’ve gone to.” “Really, why don’t you go there?” “Well, they’re out of business.” That’s the story of the picture frame business. They get beat up by the customers, and they’re afraid to charge what they need to charge, and they go out of business. There were 25,000 frame shops in America 10 years ago. Now there are 8,000.

Loren Feldman:
Karen, what’s your formula? How do you think about what you charge? Are you looking at the competition or are you just focused on what you need to do to make a profit?

Karen Clark Cole:
It’s both. We have a number that we have to hit in order to be profitable. It’s an hourly rate. It’s a target hourly rate that we have across all of our work and that’s based on our salaries. Our number one highest expense in the company is employee salaries. Because they’re knowledge workers, these are really highly trained professionals, they’re really expensive, and they are asking for raises every week. We have to raise our rates in order to stay in business. It’s very simple.

We’re looking at that, we’re looking at what is that bottom number that we have to hit in order to be profitable on a project or in order to break even? There are many projects where we’ll give a discount for all kinds of different reasons. But we have to hit that break-even number.

Then we’re looking at, what will the market bear? We like to describe ourselves as the Tiffany’s of what we’re doing and I’m totally fine not being the cheapest one in the room. In fact, if we are, then we need to raise our rates. We go in high and we give a lot, and we have a lot of repeat clients because of that. They know that they’re going to get a lot. “You get what you pay for” is sort of the age-old truism.

Loren Feldman:
Have you learned any lessons through the years, Karen? Have you made mistakes on pricing, either by losing a job that you think you should have gotten because you asked too much, or by not asking enough?

Karen Clark Cole:
Yeah, that’s happened loads of times, but I don’t consider that a mistake. We do a really careful job of pricing our projects and so I don’t ever feel like it’s random or it’s willy nilly in any case. We have incredibly complex spreadsheets that we use to come up with pricing. We’ll walk some clients through it if they really want to see it. But in the end, it comes down to trust and our reputation. As we’ve been around longer and have more and more bigger clients and repeat clients, they know that you get what you pay for.

Jay Goltz:
I can tell you on the buying side, here’s an example of my home store, Jayson Home, we have a website. We went to Magento, which is a platform. You shop around and you hear one place is $300,000, another place is $210,000, another place is $140,000, and unlike buying a car or a picture frame or anything, there are no tires to kick. They all made proposals. They all have offices, maybe one has the ping pong table, maybe one doesn’t. How are you supposed to judge this? So what do you do? “Well, $300,000, that’s a lot of money. We’ve got to go with the cheaper one.” I’ve cycled through three of those companies now, because there’s always something wrong there.

Loren Feldman:
How does that apply to your thinking about your pricing?

Jay Goltz:
My pricing is simple. I believe in today’s market, you either need to be great or cheap, and the company that’s in between is going out of business. I think If you look at all the retailers that are going out of business… Sears: are they great? No. Are they cheap? No. The only way to be cheap is if you figured out like Walmart some way of getting your costs down. Well, most companies can’t do that.

I’m taking the approach in all of my businesses, I want to continue to give great customer service and great products, and I need to charge what I need to charge. I don’t even look at what the competition is doing anymore because it just doesn’t matter. What if I go out in the market and I find out that people are 15% cheaper? If I drop my prices 10 or 15%, I’d be out of business. I’m not going to start—

Loren Feldman:
Well, it would matter if you found out that your competition was charging more than you are, right?

Jay Goltz:
Yeah, absolutely. Very insightful. But I’ve got good, solid people who work here and I don’t want to run a sweatshop, by definition, no health insurance, everybody’s at minimum wage.

Loren Feldman:
You’re saying you don’t do that.

Jay Goltz:
I don’t subscribe to that. I don’t chase hotel jobs anymore because the art that hangs on the wall, it’s not really important to them. They find somebody who’s going to frame a picture for them for $23, which is why when you go into a lot of hotels, the stuff on the wall is falling apart, literally. I don’t want to be in that business. I want to do quality stuff with people who know what they’re doing and give great service, and there’s a price to pay for that. Luckily, I’m in an industry where the customers appreciate that.

I’m literally 20 times the size of my competition. I’m not cheaper. The reason is because the kind of customers who frame pictures—it’s only 3 or 4% of the population—the kind of person who does custom picture framing wants something done well. That’s why they’re framing it. And then you get the people out there with the chain stores with the 50% off nonsense, complete nonsense. There’s no such thing as a list price. I position myself as the value proposition of, for what we’re doing, we’re giving them a tremendous value, which is why I’m doing the volume I’m doing.

Even with all that being said, it’s absolutely emotionally difficult to raise prices. Even today, after 41 years, it’s still an extremely gut wrenching—you’re always afraid—”Oh my god, am I gonna get too pricey?”

Loren Feldman:
Are you feeling that right now, Dana?

Dana White:
Yeah, for me, I love what Jay said about, “I don’t have time to look at my competitors right now and I don’t have time to decide.” I need to look at what the bottom line is for Paralee Boyd and decide the pricing therein. As far as the cost, I just changed my pricing structure, or how I pay my staff, because again, Jay is right. Minimum wage just went up again here in Michigan on January 1st. You have to raise your prices in order to be able to pay your people.

I don’t offer benefits and that’s not unusual in the salon industry. I think most companies that are big in the hair business do, but smaller people like myself, we don’t offer benefits. My reasons behind my pricing increase are similar to Jay’s, but different.

I think the other point that he made about being great, I think that’s another thing that needs to be communicated. “We’re getting better, so here are the changes that you’re going to be seeing, or that you’ve already seen, and it’s time to raise the price.” That’s it. I’ve been cheap for too long, and I think that has harmed my business.

Loren Feldman:
I want to do one more segment here. Almost every day in our 21 Hats Morning Report, we’re writing about technology that business owners use: a new CRM, some change on Facebook for marketing, or something like that. I’d love to just take a moment with each of you and ask each of you: tell me some kind of technology that you just couldn’t live without right now, what are you enjoying, and some piece of technology that you just can’t wait to replace—something that you can’t stand using? Whether it’s technology that you use personally as the person running your business or something that the business uses. Karen, you’re in the tech business. I’ll start with you.

Karen Clark Cole:
Oh God, you’re gonna have to go to the next one. I don’t have a good answer. I have to think about it. Because it’s so in my face all the time that it’s hard for me to decipher. Let me think for a minute.

Loren Feldman:
Okay. I can’t go to Jay, Dana. [Laughter]

Jay Goltz:
Go to me. Please ask me.

Loren Feldman:
Okay, Jay, how about you?

Jay Goltz:
I really, really enjoy and love my electric garage door opener. It would be very hard to do without it. What am I looking to replace? I’m just trying to keep up enough. As you know, I blogged for you for years at The New York Times and I’m good at doing some of the stuff on my Apple and I brought a guy in to help teach me how to use more of it. But the reality is, he’ll show me how to do it, but I don’t use it enough. I can’t use an Excel spreadsheet, for instance. Simple, right? And it would probably be good for me to know how to do that. I just don’t use it enough that even if you show me how to do it, I’ll do it for a day or so, but I’m not going to use it for six months. I’ve just learned to accept, it’s okay, at the end of the day. I’ve got 115 employees. I don’t need to know how to use an Excel spreadsheet.

Loren Feldman:
Jay, it might be like the week you spent studying insurance. As someone with an accounting background, you might actually enjoy it if you—

Jay Goltz:
I’ll tell you why I love the insurance thing. I found a website, moneychimp.com, that’s got all of these calculators in there, so you can say, “Oh, if I put that same insurance payment into a bank account at X percent…”—I love that stuff. So okay, I’ll use that as my technology: moneychimp.com.

Loren Feldman:
Dana?

Dana White:
Ours is mindbody.com. It answers both of your questions. It’s the technology we use to run my business. Can’t live without it, can’t live with it, can’t wait to either make something or find something to replace it, because I do need something more detailed. There’s nothing like being able to log into an app or log into your computer and see how many people we’ve had today, how long they’ve been in the salon.

Loren Feldman:
This is the software where it’s basically the operating system for your business, right?

Dana White:
Yes, that’s it.

Loren Feldman:
It helps you manage your employees. It tells your employees what they need to know about return customers.

Dana White:
Yep, everything. It tells us how many people we can expect on Tuesdays in the month of February between 9am and 9:15am. It helps us manage our business in 15 minute increments, but it can be more detailed, and sometimes it shuts down and there’s a lot of service outages. Can’t live with it, can’t live without it, looking forward to the day where we say, “Hey, it was great for the years that we were in business with you, but now we’ve made our own platform.”

Loren Feldman:
Do you think that’s what you’re going to do? Are you going to make your own?

Dana White:
Absolutely. As we expand, I need something more detailed. If I choose to franchise or even if I just expand with company stores, that technology would be the center for how all of the salons will run. Check-in features through an app, being able to manage to the second how our guests are in the salon, that would be ideal.

Jay Goltz:
Dana, are you telling us there’s no software in the market to run a salon that’s close to what you need?

Dana White:
Nope, we’ve been looking. We’ve even looked in health care. The closest we found are for restaurants, but even restaurants, we’ve tried to see if we could go in on the back-end and change some things, and no, it’s pretty much reservations, appointment-based. Everything is appointment based.

Jay Goltz:
If I can share a little of my experience—keep in mind, this is the problem I have. My framing business is so much bigger than everyone else’s that I can’t find the software to run it properly. I’m still using something from 30 years ago that used to run a wholesale business. I can just tell you from my experience and a lot of other people’s, I already blew my $100,000 or $200,000. I don’t know that you understand what it really is going to take to build a software—

Dana White:
It’s expensive, yeah.

Jay Goltz:
Whatever number you think’s in your head…

Dana White:
Triple it.

Jay Goltz:
Maybe 10 times it. I’ll tell you, I now understand, even in my size, it would be hundreds and hundreds of thousands of dollars. I was told years ago, “Don’t try to write your own software.” So unless you’re sincerely thinking you’re going to get some venture capital and do it, I’m not so sure that’s going to be viable.

Dana White:
It’s really expensive. I’ve had friends say, “Just do a prototype, get somebody out of India to do it for you.” The cost is going to be really hard. That’s why we’ve looked at a lot of these other industries to see what we can find. A friend of mine, he’s still looking for me. It’s one of those things when you’re looking at other places for technology: what is it that you can do without? So it may not have everything you need, but it has some of the things you need.

Loren Feldman:
Karen, this is your area. Do you have any thoughts?

Karen Clark Cole:
Don’t build software unless you really have to. It’s actually more expensive than Jay said, because you’ve got to factor in $500,000 of design work before you build it. But you’ll get what you want. I mean, it’ll be great, and then you can sell it.

Dana White:
That was the idea. The idea was because it was a walk-in only type of situation, we’ve had a grocery store approach me, say, “We’d be interested for example, for days like today, when the weather is about to change, how do we need to staff?” We had a ballpark, a small one here in Michigan, come to us and say, “Hey, if you develop it, we’d love to buy it from you,” and other salons.

Karen Clark Cole:
Yeah, I think it’s a good idea. The trick is then all of a sudden, you’re in a completely different business. Then you’re a product company, which is fine, or you spin it out into a separate thing.

Dana White:
Exactly, and that’s just not where my focus is. My focus is really on growing Paralee Boyd.

Loren Feldman:
It’s hard enough to build one business at a time, I’ve heard.

Jay Goltz:
Dana, I think we just saved you $2 million.

Dana White:
That felt good.

Loren Feldman:
Karen, I know you think you’re off the hook, but you’re not.

Karen Clark Cole:
The thing I like the least is texting. I have to tell you, if it could go away, that would be great.

Loren Feldman:
Why is that? Too intrusive?

Karen Clark Cole:
No, it never goes how you think it should go. Miscommunication is rampant. It just gets overused. Text is great for a yes or a no. Anything else, it should be only allowed to have two words, like 20 characters should be the limit in a text, and then we’d be safe.

Anyway, the thing I love personally, is OneNote. That’s what I’ve been writing in. It’s a Microsoft product. It’s a book essentially, and you organize it by you can have books of subjects, and you can have chapters, and then pages within. It helps me have train of thought all over the place and then be able to organize it. I use that a lot.

Then in our business, the thing that honestly has changed our whole company is Slack. A lot of companies use it now, but it really is fantastic.

Loren Feldman:
A lot of people hate it. What do you like about it?

Karen Clark Cole:
I haven’t heard anybody who hates it. I love it. It’s highly productive. It’s got a great user experience. It’s functional. And it’s simple, and it’s easy to use. It’s got all the right ingredients. It replaces email in a lot of cases.

You create groups. Like for us, we have project teams, and so a project team has a Slack channel, and just the people on that project are connected in that channel. And so instead of a whole series of emails that you have to sort through, you just go to the channel and you know you’re in that project, and so it’s that kind of content, and then it disappears. You don’t have to get rid of it, you don’t have to delete any email, you don’t have to put it into a folder or whatever you’re doing. It’s just a conversation and the history of the conversation stays in that channel. It’s a different way of thinking, in terms of communicating within a company, but when we have multiple offices and hundreds of people, it’s really the best, most efficient way to do it.

Dana White:
We use Mondays.com. I love it.

Loren Feldman:
I used Slack at Forbes and I did hate it, primarily because we didn’t thoroughly adopt it. I was a member of four or five groups, but a lot of people didn’t use Slack. They stayed on email. So it just felt like it compounded the places I needed to go check every day and it drove me crazy.

Karen Clark Cole:
I felt like that when we first started using it and then we pushed hard on adoption.

Loren Feldman:
Do you outlaw email?

Karen Clark Cole:
Most people don’t use email internally. We do kind of, I mean, I don’t reply to email. So that’s one way to do it.

Loren Feldman:
Wow, interesting.

Karen Clark Cole:
Most people prefer to not do email. It’s too laborious. You have to look at it. You have to open it. You have to read it. You have to reply. Slack is way faster. Most people in our company—particularly millennials—they want to move quickly. This allows them to do that.

Jay Goltz:
Loren, you haven’t asked me if I use it. I’m a little offended.

Loren Feldman:
[Laughter] Jay, are you on Slack?

Jay Goltz:
I got rid of some slackers over the years. Yeah, no, I’m like the dog when it hears a weird sound and it turns its head to the side, like, “What are you talking about?” That’s where I’m at right now. No, I’m not going to be adopting that soon, I don’t think.

Loren Feldman:
I guarantee there are people in your business who know what it is, and if you asked around, you could probably find someone who would say, “Yeah, that’s a great idea. We should do it.”

Jay Goltz:
As soon as we’re done here, I’m going to go looking for that person, and then I’ll probably fire him.

Dana White:
Karen, I wanted to ask, have you heard of Scrivener?

Karen Clark Cole:
No.

Dana White:
For writing. When I write, I use OneNote and I also use Scrivener. I think you’ll like it.

Karen Clark Cole:
I’ll check it out.

Loren Feldman:
All right, we are out of time here. My thanks to Karen Clark Cole, Jay Goltz, and Dana White. Appreciate your joining us today.