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Everything that we do here is to make more money. If you charge low prices, your product will be perceived as low value. Increase your prices and you will not only make more money, but people will actually use your product and value it more. This is pricing psychology that few understand. Here's how Steve Jobs thought about it.
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Our goal is to make the best personal computers in the world and to make products we are proud to sell.
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What we don't realize mostly is that pricing is the ultimate growth leverage. Yet most small businesses fail to pay attention to it. And if they do, they tend to underprice out of fear. The reality. Get it wrong, you'll hate your customers. Get it right and you can help yourself build a profitable, resilient business that customers respect and pay for. So today I'm going to go through how do you price your business better? Your action steps are going to be these. Hello and welcome to the Big Deal podcast. I'm Cody Sanchez and this week we're doing something a little different. If you've ever asked, why do you make these videos? Well, I. I own a portfolio of businesses and we invest in small businesses across the country and we invest in the infrastructure and technology of the companies that build our small businesses. So part of the reason why I am doing these episodes now on Build is so that you may one day partner with us. Maybe you let us invest in your company, maybe we grow alongside you, maybe even sell your company to us. So I hope you make more money. I hope you build it in your community and also I hope that you build a small business so I don't have to go to any more chains. Without further ado, let's get into it. If you want to make more money, the easiest thing to do is actually sell things for more money. If you charge low prices, your product will be perceived as low value. Increase your prices and you will not only make more money, but people will actually use your product and value it more. This is pricing psychology that few understand. What we don't realize mostly is that pricing is the ultimate growth lever. Yet most small businesses fail to pay attention to it. And if they do, they tend to underprice out of fear. The reality your pricing dictates your profits, customer quality, and brand perception. Get it wrong, you'll hate your customers. Get it right and you can help yourself build a profitable, resilient business that customers respect and pay for. I wish more people paid attention to the powerful levers in a business that pricing is said it wrong. You struggle with thin margins, weak growth, and constant pressure to Sell even more just to break even. So today I'm going to go through. How do you price your business better? Your action steps are going to be these. 1. Raise your prices. If it's been over a year, you're behind. Two, compare against competitors. If you're the cheapest, you're likely undervaluing yourself. Also remember guys, you can only price yourself the absolute cheapest to the bottom. There is no value in being the second most cheap, so why play that game anyway? Three, you're going to test and track, increase prices incrementally and measure customer response. 4. I want you to offer tiers. This is how you capture different customers with different pricing levels. Most people charge one price. You're going to expand at least three. Five. This is how you communicate value. You frame price changes around quality, not just cost. And then six. Monitor and just you don't set it and forget it. So here's my guide on how to raise prices so that your customers thank you for it. I built something for you builders. If you are building a business right now, I think this is the playbook for scaling businesses. We call it our contrarian operating system. It's how I manage all of our businesses to both grow really simply but consistently. And it's free for you. If you want it, just click the link in the show description and try out the operating system. I really think you guys, if you want to have a business, not a job, you have to have a system and a process and not a hope and a prayer. If this is useful for you all as well, you can talk to my team. We have tons of resources for builders. I am here to make sure you succeed in our portfolio. We've realized if you don't understand pricing, your business will be held back from ever hitting its potential. It is oddly overlooked. So let's jump into some examples. I think the best way to learn is by modeling. Let's look at YouTube. YouTube TV has raised its prices by 137%. 2017 they launched it was 34.99 and by January 2025 it was 82.99. Remember when YouTube TV was the cheap alternative to cable? I mean I remember this. Five years after launch, the price doubled. Fast forward to the hike in January and we're starting to wonder if it's a rip off. Think YouTube ever felt anger at increasing their bottom line? Nope, not really. While prices are rising steadily, so are paying customers. They're estimated to surpass every other ad live TV platform by 2026. 8 million paying subscribers at the end of 2024. So like 600 million in revenue. But they're not the only massive companies to successfully raise prices. We've got Netflix. Netflix raised their prices from $8 a month in 2007 to $23 a month today. And then they lost a few customers. So they lost some at the beginning. They lost a million customers when they increased their prices the first time. But today they have 300 million paid subs. You know what's wild? Over the last two weeks, you are the only reason this podcast has grown. I don't know if you're new here or you've been here for a while and y'all just started sharing more, but you were the only reason that we continue to climb the charts and hopefully provide more and more value for you. We just moved up from top 100 to top 50 in biz on Spotify, which is cool. So thank you for sharing with your friends and thank you for sharing with your employees and thank you for sharing in your slack groups and and social media and everywhere else. And if you like this podcast, please do send it to another human that you care about because you are a big deal to me and I know they are a big deal to you too. So that's a beautiful thing to do. Thank you for sharing the pod. What's wild is they're obviously more profitable. I mean, if you look at this, you can basically see that we have increased margins and users at Netflix. What I thought was interesting, and here's where we're going to steal their homework, is they do it by offering multiple tiers. So if you want to stay at the lower tier, you can. Your wallet doesn't get hit. They use an un grandfathering strategy, so you don't get to stay in your price point forever. At some point, you just got to keep moving up and they realize that if they have the best content in the world, people will continue to pay. Now another one, Starbucks, they had to raise prices due to inflation supposedly in 2023. And they got killed. They got murdered for it on tv. Everybody said it was terrible. But then what happened? Well, they actually increased their revenue that year, so they were estimated to do like 9.28 billion. Their actuals in 2023 were 9.37 billion. And they made more money. Instead of having negative traffic to stores, they were positive. They increased their average order value. And the same thing happened for Amazon Prime. You know, they basically went and tripled their price since they first started in 2025. Now, I think the moral of the Story here is if big companies are doing it, it doesn't always mean that your little company can do it. But how can you steal their homework? So how do you raise prices and have customers? Thank you. First, we're going to go with value bundling. So YouTube is streaming the Super Bowl. Amazon just added new prime benefits. Starbucks just launched a new favor. How could you quit now when they have something that you want? In our business that may be something like, let's say that you run a small window cleaning company like we do pinks. Well, in our window cleaning company, if you want to have the new power washing service added one time a year, you need to be on a recurring payment plan. So we bundle it. That keeps you in a position at contrarian thinking. If you want to come to all of our community events, well, that is only a possibility if you stay with us in one program. So we're going to bundle. Second. Market position assessment. This basically is a study where you need to look at your customers and see how indispensable you are to them. Netflix. Well, the friction of changing habits outweighs the friction of paying $2 more a month. That's the same with me. For my gym, I kind of don't want to go to anyone. The gym's located close to my house. If they raised my price five to ten bucks a month, I probably wouldn't care. This is also why you want to sell more things to rich people, because they actually much more value convenience and continuance as opposed to price and discounts. So you want to ask yourself, for my user base, how much do they absolutely need me? How much do they also not notice what's happening? Landscaping. Let's say if you have to go out and you find a new landscaper, they can't come. You have to schedule somebody. You might actually have more price defensibility than you think. Three tiered implementation of pricing. So what does this mean? It means that you look at your customer segment and over the course of the next three or 12 months, I want you to do one thing. Okay, my highest value customers, I'm going to add some value to the offer that I have for them and then I'm going to increase their prices. Then I'm going to go to my mid tier, I'm going to do the same thing. Then I'm going to go to my lower tier, I'm going to do the same thing. So every single segment gets increased in price. Step one, Step two is going to be the low segment gets an offer to go to Your mid segment? Well, you know, you have our basic car wash. The basic car wash doesn't include cleaning up the wheels and spraying the interior. Would you like to upgrade to to the premium car wash? Okay, cool. Upgraded that. So now we've not only increased the price of the low, the mid and the high, but we're moving customers from low to mid to high. They have a choice in both and they get value in both. Lastly, we do the math. Everything that we do here is to make more money. So there are really three ways to make more money in your business, right? You can do acquisition, you can get new customers, you can do retention, you can keep those same customers, or you can charge more to your current customers. Any more of any of those three gives you more money. Well, what's interesting is Y Combinator did a study and they said for every 1% increase in each one of these acquisition, retention, and monetization, what amount of growth do we get from it? Well, turns out if you get 1% increase in new clients, you get about 3 1/2% growth. If you get 1% increase in retention, keeping your clients, you get about 6, 6.6% growth. And if you get 1% increase in the monetization or how much you charge to your clients, you get about 12% growth. So basically 12x. By the way, if you're building a business right now and you're stuck or you want to break out to the next level, maybe you're not where you want to be today. Believe me, I've been there many, many times. I want you to know I got you. We help thousands of business owners a year figure out how to scale to the next level. One of my favorite mentors said, every level you have, there's just a higher level and a dire devil. And so if you've been in business for a while and you're doing six, seven or eight figures, there's probably one thing standing in the way of your next level. That's why we host Growth and Scale workshops four times a year throughout the year in Austin, in Miami, in San Diego. And you may be a fit to come to one of them. If it sounds interesting to you. To get help on how to scale your business to the next level, you can reach out to my team at the link in the show notes. We believe in you builders, but we also believe that it's a lonely road and you can't do it by yourself. What I like about this is this tells me that actually raising your prices not only is one of the easier things to do but gives you the highest return on your money or growth. So we should really obsess on it. So if we know it's going to make us more money, the question is, won't I lose customers if I raise prices? And here's the truth. Price sensitive customers are often less loyal anyway. They'll jump ship the second a cheaper option comes along. By raising prices, you filter out basically bargain hunters and find your true fans or what we call your right fit customers. Now, I love this line that Peter Thiel talks about.
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The extreme binary view of the world.
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I always articulate is that there are exactly two kinds of businesses in this world. There are businesses that are perfectly competitive and there are businesses that are monopolies. What if my competitors undercut me? Well, let me say this. Your prices probably shouldn't be your selling point. Instead you got to focus on differentiating through your value and quality. When you're the best at what you do, price becomes a triviality. Also, your aim in business is to achieve some semblance of control. So the ability to control is to set prices. This happens when you've created unique value. And I know monopoly sounds like a bad word and it often is, kind of. But Peter explains why it's not what you think. What if I can't raise my prices? You can. So how can you tell if you should raise your prices? You may just be too scared to raise your prices. And so these are the telltale signs your business is ready to raise. Number one, you're selling out or can't keep up with demand. When you're drowning in orders, it's a clear signal the market is willing to pay you more for what you offer. Raise prices to align supply and demand and like, keep some sanity. Number two, if you haven't raised your prices in over a year, then you need to. Inflation alone justifies a 2 to 5% annual bump and your costs have definitely increased. So if you keep prices stagnant, that means you actually lose money. Inflation is the benchmark. But most of my portfolio companies are on a three month rotation. So every single three months we look at the right pricing. Number three, if your competitors charge more than you. Have you done an evaluation of your competitor pricing? If you're pricing significantly less than them, it's a negative signal against you actually, because remember, price is an indicator of value. So if you let low prices paint the wrong picture, you might be making less money and losing sales. So that's why we get to number four, which is preserving a premium image. Would you think highly of a Louis Vuitton bag if it cost $30. High end brands aren't bashful about their prices. They filter out penny pinchers and they actually signal value. Here's how Steve Jobs thought about it and I think it's pretty perfect.
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I can tell you what our goal is. Our goal is to make the best personal computers in the world and to make products we are proud to sell. We just can't ship job. There are thresholds that we can't cross because of who we are. We want to make the best personal computers in the industry.
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Number five, if you don't have multiple price tiers, you need to. Different customers have different needs and budgets. So basic Pro premium. This is how you capture a wider range of the market. I like to start with three. You can always add more. I have not met a business yet that does not need multiple price tiers. Every single business does. In fact, we had one business where it was a landscaping business and they basically offered an rfp, a custom quote for every single user. And they thought that sounded good because they were really scared about messing up price amounts. But instead, what do they do? They gave three options. Here's the basic, here's the pro, here's the premium. And they made sure that they had enough wiggle room in there that those prices covered just about anything. Number six, your commercial and retail rates are the same. So. So B2B clients have deeper pockets than consumers. Don't be afraid to charge them accordingly. Usually there's the rule of 20 to 100. So a 20 to 100% premium for commercial work is standard practice. If I charge a retail customer me 20 bucks, I can usually offer that price somewhere from 40 to 120 for a commercial work. Seven, if you don't offer subscription options, this is like the holy grail of pricing. Predictable recurring revenue makes you less reliant on one off sales. I like how YC partner Aaron Epstein explains how SaaS businesses make a killing here and why most other businesses fail. Let's watch part of this really quickly. We also see that SaaS businesses are most likely to make the top 100 list. This means that customers keep paying them every single month or every single year until the customer explicitly says to stop. Number eight, you don't incentivize longer commitments. If right now you don't incentivize longer commitments, you should. The longer a client commits, the more valuable they are. So offer discounts for clients who sign 6 to 12 month contracts up front. It's a win win they save money. You get guaranteed cash flow. So what I would say is, on this one in particular, at all of our scaling workshops, we look at everybody's prices, and we make sure that we also try to accelerate cash forward. So price changes don't always have to mean you charge more. It might mean you charge less, but they have to pay more upfront. So we need to be get really creative with this. One final note. It is actually very possible to shoot yourself in the foot with raising prices. And here's the wrong way to do it, as shown by Netflix. So Netflix absolutely killed their price range recently. The most recent Netflix price range was all over the Internet, and people hated them, and maybe rightly so. Here's what they did. They had an update that said this. You can see it right here. Hey, Joe, thank you for being a valued member since 2019. We hope you're enjoying everything Netflix has to offer. We're updating your monthly price to $17.99 pre tax on March 21, 2025. So instead of doing a magic moment, they said you've been a valued customer for years for no reason whatsoever, we're going to materially increase your price. It went from being $7.99 to almost $28.28 after taxes. And you can see the Internet was like, RA losing it. What could they have done instead? Let's rewrite their hook. Joe, you enjoyed 57 hours of Netflix last month. That's about 12 cents per hour last year. We hope you continue to enjoy Netflix. We have had a slight increase in price that will only increase your price to about 18 cents an hour, 20 cents an hour, whatever the math is. You guys can help me out. Also, they added zero ounce of personalization. It falls flat. Remind your customer how they trusted you instead of reminding them how long they've been with you and how you don't care. The other thing that they didn't do is this email that we see here. I'm pulling it up on screen. It basically says what's common to Netflix in March of 2025. It feels like they're paying 20% more for a service that makes their life worse anyway. This email should have made them feel like they were personally funding more amazing shows, adding value to the subscription, not taking it away. What they do here is they put a bunch of shows on there that people don't seem to be excited about that don't have big names and big headlines on it. They don't say what's coming. It kind of just seems like they're signaling. Also, it was too short. If it was me, you want to add some personality to it. I know they want to be short and sweet, but it just came off as curt. They don't provide any context. So customers provided their own like this. A company worth 416 billion that added 41 million new customers in the past year. Once more of my hard earned money terribly communicated. And for that reason, they took a big stock price hit, at least for a period of time. So if you're a small business and you don't have too much weight to throw around and you can't just not care like Netflix does. My friend Patrick Campbell has a great thought on this. 1. We take the eight reasons why to raise your company that we've already talked about. 2. We think about how to show that you care. Hey, we know that tariffs are happening across the country right now. Instead of raising prices to perfectly match that, we only raised it to cover our costs to make sure that we can still keep the lights on. Thank you so much for being with us. We will continue to do everything possible to make this service at a reasonable cost for you. Just tell them the truth out loud instead of saying we want to do it no matter what. Moral of the story, guys. If you don't raise your prices, you won't have any margin. If you don't have any margin, you won't be able to beat your competitors. And the number one rule of business is whoever makes the most money wins because they can just pay more for your customers. And eventually, because you were being nice, you will be out of business. If you guys liked this episode and you want to hear more, please tell me the only way this podcast grows is when you guys share. So thank you so much for sharing the Big Deal podcast. You guys are the ones that help this grow. Let us know how you felt about this build episode and if you tell me in the comments what you want to say to raise your prices, I'll respond back and tell you if that is a terrible idea or not.