Entrepreneur and business coach Richard Crawford-Small details why you might want to consider a pricing increase, and how implementing a strategy can help you achieve this
‘Numbers are the language of business.’ These are wise words from the father of modern investing, Warren Buffett, and are just as relevant now as they ever have been.1 It is a challenging time in the global economy, with rising inflation fueling an increase in prices and the cost of living. The Retail Price Index (RPI) has been averaging a rise of around 3% per year, and if you haven’t been keeping your prices in line with this, you may have been losing money.2 In 2021, it increased to 7.1%, and now it’s more than 10%.2
Your suppliers may have increased their costs, and right now, you are probably looking at your business and thinking that you should do the same. And you would be right… but how? Increasingly, I’m finding that many aesthetic business owners are not paying themselves appropriately due to a lack of profit in their businesses, yet they haven’t implemented a price increase in years. However, this changes today – you are about to learn how you can put your prices up by implementing a strategy to be deployed on a bi-monthly basis. This article will help you use the data of your business to achieve this.
Managing pricing occurs through a combination of three things: mindset, preparation and communication. You will need to tackle these in this order, and the first part is the most challenging.
Create a growth mindset
Many of us shy away from increasing our prices because of fear – pure and simple. You may think to yourself, “What happens if we raise our prices, become competitive and lose patients?” The truth is that you probably will lose some patients if you increase your prices, but this can be a good thing. Turning over your patient base is a natural part of the growth and evolution of a business, and you need to become comfortable with this. You are a business owner; you provide excellent services, and you deserve to be rewarded. You are in a market sector that is booming, and you have a right to make money and be successful.
You may think, “What happens if patients say I’m too expensive?” The UK aesthetics sector has been undervaluing itself for years due to a lack of understanding on pricing strategies and it’s time for that to change. Not everyone will come on this journey with you, but you can use the data you collect to help you manage the fear. If you properly understand the key issues and challenges your patients have, either through patient surveys or effective questioning in the consultation process, you can create new and exciting solutions for them at a higher price.
Firstly, you will need to summon the courage to have those uncomfortable conversations, but if you have done the preparation, it will become much easier.
Find the numbers
In this exercise, you should write down four sets of numbers that you can extract from your business:
1. What is your current average monthly revenue?
2. What revenue do you need to generate monthly to run your business (break-even point)?
3. What revenue do you need to generate monthly to run your business and pay yourself a meaningful salary?
4. What revenue do you need to generate monthly to run your business, pay yourself a meaningful salary AND an additional 30% in savings? This will be your target revenue
Spend some time on this, and allow yourself to dream – remember, 500 patients spending £2,000 per year with you is £1 million in business revenue, which is achievable. What would you do with that extra revenue? After you have a general idea of these figures based on RPI, you will have a vision of where you want to get to. The gap between number one and number four on this list might be quite wide, but that’s okay – this is a marathon, not a sprint.
Prior preparation prevents poor performance
The next step is creating the environment you need to achieve your goals, and again, numbers are key. By the way, I’d like to point out that I hate numbers. I’m not a natural mathematician and I’m far happier in the world of sales and marketing. However, I’ve learnt the hard way that not having a handle on the figures is just abdicating responsibility for your business, and that is not what successful people do.
There are two ways to fill the gap between your current monthly revenue and your target, and that is either to get more patients, or increase the average spend of your existing ones. You should always look to your current patient base first. This exercise almost never fails to unlock potential, and it will give you a super clear strategy on how to communicate your price rise to your patient base in the next step.
As I said, not everyone is going to come on this journey with you, but you can use a method called quintiling to find out who might.
Find the tribe
Quintiling is the process of dividing your patient base into 20% segments so you can more effectively target them. This method can be quite complicated the first time you complete it, but if you have a customer relationship management (CRM) system, you should be able to output this.
1. Export all of your patients’ names and their total spend with you over the last 12 months into a spreadsheet.
2. Sort the names so that the highest spend revenue is at the top (sort descending).
3. Add a row at the bottom with the total revenue generated.
4. Divide the total revenue by five.
All you need to do now is identify all the patients in each segment, for example, quintile one is the top 20% of your patients, quintile two the next 20% and so on; you could divide these by using a colour-coding system. Eventually, you will have mapped your entire patient base dependent on the amount they invest into your business, and can now analyse these results.
Look at quintile one (the top 20%) – what is the commonality? Are there combinations of treatments that show up frequently? Could you combine these into a treatment package and brand it as your own ‘special sauce’? Are there individual plans you could create? What treatments could you raise the price on while maintaining their popularity?
I would highly recommend treating quintile one as your VIP group. You might want to isolate them from price increases, or you might want to create a plan just for them – there are so many opportunities to explore working with them more closely. Do this for each quintile, focusing on the first three – that’s where your upsell will be.
If you were to increase average sales by 30%, what impact would that have on your bottom line? My guess is that it would be significant, and you won’t have spent a single penny on marketing.
The final step in this process is to communicate the changes in your business, which you can do by using your quintile data as your basis.
Firstly, you need to find the language to use in communicating the changes, and you must position it from the patient’s perspective. They want to know how your changes will benefit them, not your business.
Here are a few ideas of how you can pitch this to them:
• Quintile 1-2: Create a bespoke treatment plan for each of your Q1 and Q2 patients, then call them and inform them that you will be giving them a free review at their next appointment. Position the plan and communicate the benefits.
• Quintile 3: Analyse and spot any fast-moving patients who might be new but are spending higher amounts, and add to your Q1/2 plan. For the remainder, send a message telling them that at the next appointment you will be giving them a free review.
• Quintile 4-5: Analyse and spot any fast-moving patients who might be new but are spending higher amounts, and add to your Q3 plan. For the remainder, send an email notifying them of the price rise. Put yourself in their shoes and sell the benefits.
It’s time to increase your prices!
With the right combination of mindset, preparation and communication, a change in pricing or commercial strategy shouldn’t be something to be feared. It can bring you closer to you target patients and create stronger relationships, while building a better business for you and improving outcomes for them. Remember, numbers are the truth, and as Buffett said, they are the key language you will need to learn.
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