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There is an old story about pricing that you may have already heard. It makes an important point about how some business owners think about pricing. It goes like this:
Farmer Bill, stopped at the local diner for lunch and parked his truck, loaded to the max with baled hay, next to the front door. At the diner counter he was seated next to the local hardware store owner, a prosperous businessman.
The businessman asked him where all of the hay was going.
Bill answered, "I'm delivering it to Smith's for $ 2.50 a bale. I buy it downstate and truck it to here for sale and delivery."
"Wow, $ 2.50 is a good price", the hardware store owner says, "How much do you pay downstate for it?"
Farmer Bill replies, "$ 2.50 a bale"
"Buy for $ 2.50, Sell for $ 2.50! You can't make any money doing that!"
"I know that, I've got to get a bigger truck."
Too often, I talk with professional horsemen who have profit margins similar to Farmer Bill's.
They ignore their operating costs and price boarding lessons and training based on the "going rate" or slightly less because they are fearful about losing business or not getting enough business.
As mentioned in last week's newsletter, your escalated expense for hay, feed and bedding need to be offset with a price increase. If you've already adjusted for this in your boarding, lesson and training fees, pat yourself on the back.
DB in New Jersey wrote: "I have found if clients are given a 2 month notice they know what to expect. Also, a brief note about the increases in costs to maintain horses for their lesson.
I've only had trouble when one client who did not get the notice. Nobody likes a surprise. In addition - we commented, "as much as we disliked raising our rates, we dislike the question that suggests an alternative even more - can we afford to continue to do this? "
MP in Ohio wrote: Boy you hit the nail on the head with your comments about increased costs vs. not increasing your fees.
Having crossed this bridge before, I have come to understand that most single horse owners are clueless as to how expensive it is for the barn owner and they assume they are being gouged. So I made up a simple spread sheet of what everything cost last year vs. this year to show them just how much it cost me to maintain their horse for them.
I then explained I was in business not charity and that to stay in business and to continue providing the stellar care they all loved so much they would need to absorb the additional costs.
Once people realize how little is made on (if at all) a boarding operation the increase seemed more bearable to them.
JB wrote: Just a note to say thank you for the newsletter and for discussing this horrible state of inflation.
Thank goodness I have a boarder that insisted I raise my rates last fall and she told the other boarders this is "what she has to do, or she will be out of business".
In addition to the comments above, here are things to consider when increasing prices:
· Unlike Farmer Bill, you can't make it up with volume
· Your clients are sympathetic to your increased costs of doing business
· Small increases each year are much easier than huge jumps after years of unchanged prices
· The fees don't have to end in 5 or 0. Examples: board can go from $325 to $347, group lesson rate from $ 30 to $ 34
· Long term clients don't need special consideration with discounts. The flip side is that you've given them good service and loyalty for years as well
· Give reasonable notice; surprises about money aren't welcome
· Experience has proven after a reasonable increase in fees for services, the only clients that leave are those you are happy to lose
If you're in business, remember, the purpose of a business is to make a profit. Adjust your fees to compensate for increased costs of doing business.
