I made $100,000 by sending this letter to my customers…
Summary
- If your business operates on a 20% net margin, a modest price increase can substantially boost your profit. For example, raising prices by 20% can double profits, while a 50% hike can multiply profits by 3.5 times. If you double the price, you could see a 6x profit increase.
- Increasing prices for existing customers can be sensitive and must be executed correctly. The wrong approach, like a blunt notification of the price hike, may result in customer loss and reduced profits.
- I recall in my gym business, I tripled the price, which led to losing a third of my customers. However, the remaining two-thirds paid three times more, doubling my revenue and substantially increasing my profit, with the added benefit of servicing fewer customers.
- The best practice for raising prices is to send a tailored price increase letter that focuses on your customers and outlines the value they receive.
- Start the letter by acknowledging the growth and positive changes happening in your business and explaining the reason for the letter.
- Detail the current offerings and value provided, often reminding customers of benefits they might have overlooked or been unaware of.
- Announce additional services and improvements you plan to introduce, highlighting how these will enrich the customer experience.
- Justify the price increase by tying it to your values and commitment to providing top-quality service that you cannot uphold without the price adjustment.
- When mentioning the actual price increase, break it down into smaller, more palatable figures, like the additional daily or weekly cost instead of the annual sum.
- Conclude the letter with a message that puts the increase into perspective, offering to work with any customer for whom the new pricing would be a genuine hardship.
- Use video and direct mail for the announcement but avoid online discussions by disabling comments to manage potential negativity.
- Stick to your decision once you commit to a new pricing strategy, as it’s usually more difficult for customers to switch than you might anticipate, and the least satisfied customers will likely be the ones to depart, which can be beneficial to your business.
- Follow these steps to effectively communicate and implement a price increase to existing customers, ensuring that you convey the additional value they shall receive while maintaining transparency and integrity.
Video
How To Take Action
I would suggest starting the process by reflecting on your current pricing and how it aligns with the added value you provide. Here's a step-by-step plan to raise your prices without losing your customers:
Review Your Margins: Look at your net margin and consider a reasonable increase. Even a small hike can double or triple profits, so don't be afraid to make the change.
Communicate Effectively: When it’s time to tell your customers, write a heartfelt price increase letter. Start by praising your business’s growth. Explain that costs are rising and so must your prices to maintain quality.
Highlight Value Provided: In the letter, remind customers of the benefits and services they may have forgotten. It’s a good way to resell your service.
Share Future Enhancements: Announce any upcoming improvements or extra services. This shows customers they will get even more for their money.
Be Honest and Justify: Justify the increase by relating it to the value and quality you uphold. Break down the price rise into smaller figures (daily or weekly costs) to make it seem less daunting.
Turn Off Online Comments: After sending your letter or video message, avoid online discussions by turning off comments to handle any potential negativity privately.
Hold Firm: Once you’ve decided on a new price, stick to it. Many customers will stay despite an increase. Often, the ones who leave first are the few who were already less satisfied.
Offer Help if Needed: End your letter offering to personally work with any customer who faces genuine financial hardships due to the new pricing.
This practical plan can help you raise your prices and keep your business thriving. Remember, it’s not just about earning more; it’s about continuing to provide great service and value to your customers.
Quotes by Alex Hormozi
"The number one lever on making money is what you're pricing at"
– Alex Hormozi
"A 20% increase in pricing would double your profit"
– Alex Hormozi
"We hire and retain the best talent"
– Alex Hormozi
"I demand to be the best in the marketplace and for us to do this we must continually invest"
– Alex Hormozi
"The people who do leave are usually your worst customers and you've been wanting to get rid of them anyways"
– Alex Hormozi
Full Transcript
what's going on everyone in this video i'm going to show you how to raise your prices in a tactical way on your existing customers so it's one thing to raise your prices on new customers which for many times you know that's something that you have to do uh because you need to you know you want to reinvest in making the business better you want to cover some capital expenses or you just want to make more money which is fine and the number one lever on making money is what you're pricing at right we've done this in thousands of businesses now and there's a process that we go about this because if you raise it on existing customers be ready to have people be upset but here's why this is so important so let's say that your business runs at a twenty percent net margin which is fine right and let's say that you just for number sake you charge a hundred dollars a month if you're running a twenty percent net margin and you're 100 a month a 20 increase in pricing would double your profit a 50 increase in pricing with three and a half extra profit that's pretty good if you doubled your price you would 6x how much money you make and so this is how big of a lever pricing is on how much profit you make and so knowing how to raise your prices obviously would be something that would be very important so there is a right way and a wrong way to do it so what i want to do is show you the right way because the wrong way to do is send an email out saying hey we're raising our prices you know screw you um and you'll get a ton of customers who leave you and then you'll end up being worse off than you were before but i did this in my facility this is one of my first businesses and i actually had a third of my customers cancel but i tripled my price and so i was able to keep two thirds of my customers at three times the price and lose one third of my biggest my employees called it the culling we got rid of all the problem customers in one fell swoop so if you have a pain a bunch of customers were always complaining about stuff you might want to do this because you'll get rid of all the cancerous people and keep only the people who love you and when i did that i doubled my revenue and here's what's even cooler my profit went through the roof because i even had to service a third fewer customers which was awesome all right and so the way that we do this is uh through a price increase letter and if you're curious um my gymloc secrets book is a book that is about gyms but is a business book that is simply applied to gyms if you want it you can grab it it is not how i make money um but let's say let's let's walk through this so you have your letter to increase prices right now there's a format to doing this all right now it's not about you it's about the prospect it's about the consumer all right so the first thing that we want to do right is you know we're gonna say hey you've probably known that we've been you know growing a lot you've probably noticed a lot of the the good things that are going on right now um and so that's why i'm writing this letter all right so it's like why am i doing this why am i writing this letter to you what's the intention the letter all right the second is we're going to talk about what we currently are doing all right and so this is allowing you to re resell them a little bit on what you're currently doing the value you're currently providing them because sometimes they forget because they might only use one aspect of your service and so if they're like oh wow there's a lot of extra stuff that i didn't even know about and believe me i can't even tell you the amount of times people read this letter and they're like i didn't even know you were doing all this stuff right and so you want to list out you know the stuff that you're doing and say okay you know we hire and retain the best talent you know we have we offer continued education for our employees we you know we we're providing new uh softwares and equipment uh to our members that that we always try and keep up to date that's what we're currently doing they're like oh i didn't even think about that so the goal here is to is to get them to think about your costs try and get them into the mind of you as an entrepreneur to the best of your you know ability right like these are the things that we incur in order to provide this value it's not like we're just taking all the money you give us and putting it in our pockets because that's what everyone always thinks all right the next thing we do is we say wow despite all the stuff that we're doing we want to do even more because we're losing our minds because we just provide crazy value all right and so it's like we want to um like you know we're currently a ragtag bunch of champions our our our facility if you have an actual facility and if you're online it's like you know we've got a lot of stuff that's duct taped together we want to really uh you know level up the brand and we want to do it for you right so you want to tell them what's coming so this is like we want to add these x y and z things we want to add specialty programs we can add higher levels of service we want to add you know events to our to our business we want to add all these things right a massive improvement to our level of service these are all things that we want to be adding right and then what i like to do is i like to tie this tie this increase to a promise of values okay now what i mean by that is i want to tie this to values that i ascribe to that no one can contest so i can say i have made this promise to you and with integrity i can no longer provide the level of service uh that i have promised unless we do these things because i will not stand here in this marketplace and say that we are the best at xyz unless we do these things and the only way for me to do these things is for us to have a corresponding increase in price all right now mind you when you're communicating the price it's also important to communicate the price in a way that's you know attractive so you want to say hey it's going to cost you five thousand dollars extra a year you would say it'd be better to say uh it's going to cost you an extra 100 bucks a week right sounds like a lot less right you could even break down even more and say it's 15 bucks a day it depends on you know who we're talking to and what level of service you have but you can break it down to weekly or break it down to daily and that's why insurance quotes people in days it's only a dollar a day right um so that you can do this and it will minimize what the perceived cost is so ideally you want to maximize by saying this is all the stuff we're doing that we you didn't even know about this is the stuff we want to do that's even more than that and this is how little it's going to cost you and the reason we must do this is so that i can maintain my integrity to you and the promise that i've made you i'm fervid that this is something i'm planning my flag here is that i demand to be the best in the marketplace and for us to do this we must continually invest and for us to do that like this is what is required right and then and here's what's cool is that i like to add a little ps at the end and that little ps is to give perspective all right and what i do here is i say if this is going to materially affect your life if you're not going to be able to pay your mortgage you're not going to be able to buy groceries for your kids please reach out to me um and we can figure something out and so by saying that you automatically perspective to everyone that listen no one's gonna go homeless over this thing right no one's gonna lose their house because we're raising the price of our xyz right right but we open the door for discussion for the people who feel obligated or feel the need to do this now if you make an announcement like this which i recommend you doing via video and via direct mail you want to make it and then also turn the comments off on whatever the post is because believe me you don't want to deal with that as you just say hey i don't want this to be you know a gossip form if you have anything just bring it through me directly out of respect for you i want to deal with these you know face to face and not over the keyboard right and so it's an easier way to also manage and mitigate any kind of negativity that happens and believe me if you raise your prices you're going to have people who are going to be squeaky wheels and it's in their best interest to get you to not raise the prices so just don't chicken out once you commit to it stick with it all right because i'm telling you if you raise your price like i just told you if you have a 25 margin and you raise your price by 25 you double your profit all right so i told you i lost a third of my customers but that's because i tripled my price and most businesses don't realize how much of a pain it is to find another one of your business and so if you can capitalize on that and you can usually eke out an increase in in revenue and profit as a result you will be far out rewarded by making that change and the people who do leave are usually your worst customers and you've been wanting to get rid of them anyways and this gives you a great time to do it so if you're going to raise your prices this is the way that i do it to existing customers i write a letter i tell them you know why i'm set i'm setting the stage for why we're doing this i tell them all the things that we're currently doing that they don't know that we're doing and you probably do tons of stuff it's good to list the stuff out then you tell them about the future of what's going to happen what the benefits are going to be to them to what they're about to enjoy and how that's going to impact them in a real way in every single time they see you they experience your business they interact with you and what benefit of the benefit is going to occur and then finally i like to end with values and perspective all right so probably values are right here so values is kind of the wrap up so just consider that 3.5 sorry 3.5 right and then you have your wrap up which is hey big picture this isn't going to make you or break you you're not going to go homeless because of this but if you do have something that's going to materially affect you because you have that anchor it makes it very easy for you to have that discussion right and so if you have to raise your prices this is how i recommend doing it i actually have the exact letter that we send out for for gyms in my book if you want to grab it you can i promise you it's not how i make my dollars but you can get that alex's book.com if you're curious otherwise keep being amazing um keep being awesome i made this channel so that uh a lot of people are broke and i don't want you to be one of them that's why i made this so keep being awesome i'll see you guys on flipside bye