Short answer, more. Raise your prices. Raise them high, raise them now. Don’t be embarrassed about making a profit. Sometimes the profit margin you were hoping for disappears into a margin of error. Raise your prices.
If the only thing you bring to the table is the willingness to work for less, then you will always be vulnerable to the competitor that is willing to accept still less. You have unique attributes, now you just need to get paid for having them.
No one likes a price increase. That’s where selling comes in. You cannot go into your boss’s office demanding a raise all pumped up from reading a motivational book. You have to justify every penny of your existence. Keep timing in mind. Maybe you are setting new precedents of excellence doing your job, but the company is suffering. You may need to wait to make your case.
Years ago, I was remodeling some apartment balconies. I put the job out to bid with several contractors. The lowest bid was less than half of some of the other bids. I noticed that one of the higher bids had gone into considerable detail quantifying all the labor hours involved and the materials required, including lumber. I noticed that the cost of lumber alone exceeded the price of the low bid! I checked the lumber prices at a big box hardware store and found this higher estimate to be accurate.
Had I accepted the low bid, that would not have ended well for anyone. I went with the more costly proposal from the contractor that had done a better job of doing his homework and documenting all that was involved to complete the job properly. In other words, the contractor with the higher bid did a better job of selling.
Being thorough and prepared can win the day, but fear of customer reaction keeps entrepreneurs and employees from getting what they are worth. I have certainly lived this fear.
Some years ago, I bought a 40-unit apartment out of foreclosure. There were 32 vacant apartments. The eight units occupied were all low-income elderly residents on government rent subsidies. The vacant apartments were not going to rent in their present state. Therefore, we embarked upon a massive renovation.
We built new detached garages where none existed before. We did the landscaping over. Common hallways were redecorated. Individual apartments received new kitchens including appliances, all new flooring and other updates. Every stick of wood came out and was replaced with new doors and trim. The apartments looked like new construction when we were done.
All this work was going on and our eight original elderly residents were home all day to watch. I knew what would happen. All eight would want the new stuff too.
I didn’t have the budget to renovate all 40 apartments. I just planned on remodeling the 32 that were vacant. I would remodel the occupied eight later when more funds were available.
Knowing that I needed to stall on remodeling the occupied units, I had a plan for discouraging these elderly tenants from demanding a new apartment. First, the renovations were too extensive to complete while the apartments were occupied. Therefore, the first step to getting a new apartment would involve moving, if only across the hall.
Second, these elderly, fixed low-income tenants were going to have to pay the new market rent for a new apartment, a 25% increase. Further, they were going to need to increase their security deposit to the same value as the market rent as well. In short, to get a new apartment, these elderly residents had to be willing to move and pay a substantial sum both up front and each month. I figured none of them would be willing or able to accept this opportunity and I would be spared from having to remodel eight additional apartments.
Did my plan work? It worked beautifully – for the elderly residents. All eight of them took the deal! I had to immediately remodel 40 apartments instead of 32. I had to scramble to find the money to do it. The existing tenants loved their new apartments and all of them continued to live in their new homes until they either died or moved to a nursing facility.
People are willing to pay extra for something that is a bit nicer, even to someone who sounds like a complete Scrouge like me.
I may be a Scrouge, but at least I have hair
Years ago, I had a gentleman stop in my office. He was completely bald. I don’t mean that he had no hair, I mean that he had no eyebrows, no eyelashes, no hair whatsoever. When his real estate enterprise unraveled, the stress caused him to lose his hair – all of it.
I had another friend ask me to prepare a broker’s price opinion on an apartment building he was having to relinquish to the lender. The technical term is deed in lieu of foreclosure. While touring the apartments together, he mentioned how difficult it was to inform his wife they were also going to be losing their suburban home. I do not want to wind up hairless, homeless and broke. If I am ashamed about my profits, my shame is only limited to why they are not more.
Come back next time, I’ll have more to say about this important topic.