Episode 280

Our Playbook for Managing Price Corrections with Pete Dupuis

In this episode, Pete shares me what to do when you need to make a big price correction for your clients.

[00:00:00] Hello, my friend in today’s episode, I’m speaking with Pete and we’re talking about what to do when you need to make a big price correction for your clients, and I’m talking about three to 5%. I’m talking about 15, 20, 30 percent price increase. How do you handle it? So if you’re in that position, this is a great episode for you.

Keep on listening. Welcome to the Business for Unicorns podcast, where we help gym owners unleash the full potential of their business. I’m your host, Michael Keeler. Join me each week for actionable advice, expert insights, and the inside scoop on what it really takes to level up your gym. Get ready to unlock your potential and become a real unicorn in the fitness industry.

Let’s begin.

Hello, fitness, business nerds. What’s up. Welcome to another episode of the business for unicorns podcast. [00:01:00] I’m back with Pete today. How are you friend? I’m doing well, Michael. Everything good with you? Good to see you, as always. Yeah, I’m doing good. I’m on day four of having a new puppy. And he’s a little sleepy, but he’s friggin adorable.

So, I can’t complain. I can’t complain. Hooray for Pippin. Yeah, his name is Pippin, yeah. Y’all on the podcast will meet him at some point. When he’s ready, when he’s podcast ready. He’s not really rehearsed enough yet, but we’ll, he’ll join at some point. So, before we dive into today’s topic, which is all about doing, kind of, Price correction that your gym, I want to just give a quick heads up to all of you who want to work with us, that this is the moment Pete and Mark and Ben and the rest of the business unicorns team.

We open up enrollment for our unicorn society coaching group twice a year. And this is the moment right now, if you’re listening to this podcast, when it gets released before November 5th, 2023, the early bird. Rate is available to you between now and November 5th, 2023. And so it’s time to apply and save literally, I think over 2, 000 if you apply before the early bird rate and applying to Unicorn Society just means that you [00:02:00] have a conversation with us to see if you’re right fit for a quick application.

You jump on the phone, probably with Ben and see if we can be helpful to you. And I’ll just be honest. The results that some of our members have been getting lately, the wins that they’ve been sharing with us have been really tremendous. The number one thing they all say is that when they join Unicorn Society, they feel a sense of belonging.

They feel like they’re not alone anymore. They feel like they have people they can turn to when shit hits the fan. They feel like they get clear about their goals. They use their time more wisely. Like these are the things that we hear in the first few months of people joining. And so if that sounds appealing to you.

Come work with us, anything you want to say about unicorn society, Pete. I’ll just reiterate that those savings are not insignificant. So yeah, it’s just a conversation to maybe save yourself 2, 000 down the road. Exactly. Yeah. That’s a good way to say it. Yeah. So there’s going to be a link down in the bio and you can also go to our website, PacificUnicorns.

com and Go click, click to learn more, click to learn more and fill out the application. We’d love to talk to you. All right, let’s switch gears. So today’s topic actually came from conversations that you’ve been having recently. Pete was [00:03:00] some of our Unicorn Society members. I feel like I have these conversations at least once a month, and it’s for people who need to make a price adjustment at their gym.

That’s more than. A regular price increase. You’ve probably heard this podcast before everyone that, you know, we recommend everyone raise their rates for their clients once a year. Usually that increase pre COVID inflation days was usually like maybe three to 5%, almost always under 10 percent as an increase every single year to keep up with kind of cost of living.

And those we still recommend that, but once in a while. As a GM, you might get a little behind. You haven’t done a raise for a long time, or you’re like, we did an MFF where we promised our original members we would never change their rates for years, and you need to do a correction. A correction is something that we think is like over 10%, and in some cases it’s 20, 30%, or more, and that’s a different kind of strategy.

That’s It’s different than everyone pays an extra few bucks per month. This is a significant change to people’s expectations. And so that’s what we’re going to talk about [00:04:00] today, Pete, you want to talk a little bit about what makes it really important to get this right? Yeah. So I’m excited about this one because you and I haven’t discussed this.

We’ve got a, we definitely have a playbook. We have SOPs in place for rolling out a price increase, but it’s important that we emphasize two words that you use the word adjustment and use the word correction. You didn’t use the word increase because this is more than an increase. This is more than your standard.

Hey, the cost of business goes up every year. We’re going to be a little bit more expensive for you, like everything else on your shopping list. No, this is a necessary adjustment to stay solvent in certain cases. And thankfully it’s not when we see with long term clients, because if we do, it’s our fault, honestly, it’s on you, me, Ben and Mark and wheels.

If we get to a point where all of a sudden we are casually suggesting a 30 to 40 percent price increase to someone who’s worked with us for 24 months, we need to look in the mirror and ask ourselves how we drop a ball on that one, but. This is with people who [00:05:00] have been with us for 5 months. And we’ve been telling them, Hey, you gotta get, you gotta get your prices right.

But the thing is, we don’t often know exactly where they lie within their market. Because we know our own respective markets very well. But I admittedly couldn’t tell you what it costs to do business in downtown Chicago. And so when I do… Have these conversations. I’m typically asking about where the competition lies and What happens in these cases is usually people realize they’re dramatically below Where they need to be in relation to their peers within the field and they’re just terrified of pissing everybody off I’m losing 50 plus percent of their clients with a course correction.

And this is a, an exercise in managing expectations and messaging and transparency. There’s so many things that go into this, but it’s got to happen. If you want to make it to that next lease. So, I guess I’d say where do you jump off with [00:06:00] this conversation, Michael? Do you kick them toward any resources that you already have?

Or do you have any rules of practice that I’m unaware of that I can put into my own toolkit? Yeah, I have lots to say. First thing I would do is I just want to double click on that idea that this is really all about expectations. This is about communicating a change of expectations. And it really matters in part because Pete said, If you’re having to increase your rates by 2030, percent or more, then with all love in my heart, you made, you fucked up already a while ago.

At some point you entered the market at a place that was too low. And most businesses who do that just have almost no profit margin, right? Or in fact, negative profit margin. So this is like a critical change to make. If you find yourself in that position, if you’ve had such a low profit margin, you came to the market.

And underpricing yourself, you have to do this if you want to survive. So there’s a lot at stake when this change gets made. But I’ll say this to answer your question, Pete, where I start with this is I usually recommend starting with some in person conversations with our longest term [00:07:00] clients. And I recommend starting this, those conversations with some mea culpa with a, Hey Pete, you’ve been working with me for several years.

And I gotta be honest with you. I messed up when you joined two years ago, I’ve been too cheap. I was too cheap. I was afraid to not get any clients. I was afraid I had rent to pay. And so I’ve been underpricing myself for two years and I’m not doing it today, but just know that I’m going to have to start to make some changes to fix that.

And it’s on me and I recognize you’re going to have to pay the price, but literally if we want to keep this place going and you, we want to keep working together and we’re going to keep the lights on. It’s something I’m going to have to do. And so as I move forward and I share all these details with you by email, I just really appreciate your flexibility, your trust and honesty that we can get through this together.

Right. It really starts with that. I fucked up moment. Please stick with me as we work through this. Yeah. When I was planning on suggesting this as a topic, I just wrote the term mea culpa. That’s definitely a jumping off point. I’ll tell you, I have what feels a little [00:08:00] counterintuitive as a suggestion for some people when they find themselves in this circumstance.

And that is. If you believe yourself to be truly the best offering in your market, I am of the opinion. It’s not a terrible idea to show exactly where the market’s pricing strategy lies. I’m actually not afraid to publish the rates of my competition for my community if I make this hypothetical move. And if somebody says that is outrageous and I say, I could understand why it feels that way, but I want you to understand that this is what it costs to be a member at orange theory.

This is what it costs to be a member of Mark Fisher fitness. This is the rate to train an equinox or a lifetime. And I would have no problem with leaning into where we stand in that competitive landscape, understanding that I am going to put some alternatives on their radar, but if I’m as good as I say I am, then I’m just telling them I’m course, correcting to.

fair market value. I’m not telling them, Hey, I spotted where they are and I decided I’m cooler and better [00:09:00] than them. So I’m going to outprice them by X percent because the change we’re talking about making often allows us still the ability to stay on the competitive side of this pricing strategy.

Because sometimes you’re so far below fair market value that getting 75 percent of the way to where they are gives you margins you’ve never had in your life and keeps you super competitive from a pricing strategy standpoint so long as you cushion the blow of this adjustment with the mea culpa and an explanation of where you’re going to reinvest those dollars that you collect because that’s where the playbook starts to Cross paths with our typical price increase, which is, Hey, we’re going to collect a lot of additional dollars, but I can’t wait to reinvest them in your experience and in the space and things like that.

Yeah. I love that you started with a price comparison, like the mark comparison because we really, we did that several years ago at this point, many years ago at MFF where we had to make a few price corrections. I think it was around the time when we had to tell all of our original [00:10:00] members, you can’t keep your price forever.

And, and we knew we were going to lose some people because they had to go up by a lot. And, and we absolutely hung in, in the gym, a little chart that showed our competitors nearby and how we were priced compared to them per session. And we compared ourselves to things that we think we are comparable to.

So we didn’t compare ourselves to the big box, 24 hour fitness. We compare ourselves to other training facilities and we weren’t at the top, but we’re not at the bottom either. And we were just really honest about the fact that we’re really competitive and, and for us to stay competitive and save the amazing experience that they’ve all come to know and love and trust.

We have to charge as much as the other folks are charging. To keep the lights on and attract good talent in our trainers and take care of the space and keep the equipment functioning. That’s what’s required. And I think you’re right. That’s part of the clear and honest communication that comes after those.

So the path for me is the in person conversations, the mea culpa’s, then some emails that spell out, here’s how this is going to work. Here’s why we have to do it. Here’s all the ways we’re [00:11:00] going to reinvest this money in your experience over time. Here’s how we’re positioning ourselves in the market, how we’re not the most expensive, not the least, somewhere at the top 10 percent maybe.

Um, and then I think after that, it comes to tactical stuff. And the only tips I really have for the kind of tactically, how do you increase the rates is that you spread it out. You spread it out. No, most of your clients cannot handle paying 30 percent more next month. And so what we’ve done, and I’ve seen a lot of people do very successfully, is if you’re doing a 40 percent increase, cool, do 20 percent now, another 20 percent in three months, and More people will be more okay with that when you spread out the pain.

But if you’re really going, if it’s 30 percent to 15 percent now, 15 percent later, but I think doing it in two phases, so the next three to six months, you’re getting them up to a reasonable rate, great with all new people. You can start those rates tomorrow. So increases your rate, increasing your rates for new people, easy.

You can all do that today, but for people been around for a while, I give them a little bit of [00:12:00] time. So they have time to get used to spending that kind of money. They have time to digest the email communications you’ve sent to have face to face conversations with you if needed, and you have more time to win them over when you spread it out like that.

So in terms of tactics, that’s really probably my biggest. Tip for making sure that it logistically goes. Well, you know, what else do you say to people? I got one more I want to give which is don’t miss the opportunity to fully correct this situation Not just rip the band aid off one don’t have By that you communicate to these people and this can be a kind of a compelling way to position This is a good thing where you say hey, there’s good news We’re not going to raise our prices by 30 percent every single year.

That’s crazy. This is a correction. This is an adjustment. And this is great news because we’re only going to raise them three to five percent year over year after that, which you can expect on January 1st to blah, blah, blah, blah, blah, blah, blah. And basically you’re saying to them, No, I won’t do this to you all the time.

But just a gentle reminder, I will be doing this [00:13:00] in a much more practical format. In this cadence moving forward, so glad we had this conversation and can’t wait to put this stage behind us and start reinvesting in your experience. But the thing is, so many people are so terrified of raising rates, especially a correction of this nature, that they avoid that last scary thing, which is reminding them.

I need to do this consistently in the future or we’re going to find ourselves every couple of years doing the really big painful band aid to rip off that we’re doing right in the here and now. Yeah. Yeah, that’s the thing is that when you explain it to your clients, like just a real human who’s got bills to pay, they get it.

Everything that we do in our life gets more expensive every year from the eggs on the grocery store shelves to to rent for renters Car payments my insurance this year for my car went up like triple like it’s all gets more expensive every year That’s how the economy works And if you are not getting more expensive, you’re just committed to making less and less money every year All right, I think we’ve I think [00:14:00] we’ll wrap it up here.

I think we’ve covered a lot of kind of Thoughts and best practices here about how to do a price correction in a way that’s like the least worst way to do it. I can’t promise this is a process that’s going to be fun for any of you, but it’s really necessary for the long term health of your business.

And if you really want to serve your clients for another 2, years, You have to have a good, healthy profit margin, which starts with charging what you’re worth. Yeah. Yeah. So thanks for a great conversation, Pete. And listeners, as a reminder, if you want to come work with us and join Unicorn Society now as a time, if you’re listening, when this podcast comes out, apply and during our early bird period before November 5th and save thousands of dollars on being a member in your first year.

So we hope to talk to you soon. Thanks for a great one, Pete. See you on the next one. Talk soon. See you, Michael.