Tips For Raising Your Rates & Boosting Profitability

June

30

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With inflation, raising your pricing has never been more important than it is now for your professional service firm. Many of us know this, but we still struggle to do it. That’s why I’ve got Erick Simpson an expert from the MSP (managed service provider) space with me today. He successfully implemented everything he’s going to share in his own business, so why not learn from his experience?

Join Tim Fitzpatrick and Erick Simpson for this week’s episode of The Rialto Marketing Podcast!

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Tips For Raising Your Rates & Boosting Profitability

Tim Fitzpatrick
With inflation, raising your prices has never been more important than it is now for your professional service firm. Many of us know this, but we still struggle to do it. And that is why I have an expert from the Manage Service Provider space with me today. He successfully implemented everything he's going to share with us in his own business. So why not learn from his experience? Hi, I am Tim Fitzpatrick with Rialto Marketing, where we believe you must remove your revenue roadblocks to accelerate growth, and marketing shouldn't be difficult. Thank you so much for taking the time to tune in. I am super excited to have with me Eric Simpson. He's an MSP expert, influencer, and thought leader. Eric, welcome, and thanks for taking the time to be with me today.

Erick Simpson
Thanks for having me on, Tim. I look forward to today's session. It's something that every entrepreneur and business owner should be paying strict attention to.

Tim Fitzpatrick
Yes, and I cannot wait to dig into this because I think a lot of us struggle with this. You've got some great stuff to share with us today. Before we do that, I want to jump in and ask you some rapid fire questions. Are you ready to rock and roll?

Erick Simpson
Hit me, Tim.

Tim Fitzpatrick
Okay. When you're not working, how do you like to spend your time?

Erick Simpson
I like to restore old cars. Me and my son, we find cars here and there, and then we bring them in and we bring them back to their old glory.

Tim Fitzpatrick
And then do you keep them? Do you sell them? What do you do with them?

Erick Simpson
I like driving cars, so I will keep them. We're not building garage Queens, then. We build cars that we like, that have some character to them, and we're going to keep them. We're not flippers.

Tim Fitzpatrick
What's your hidden talent?

Erick Simpson
Gosh, I think my hidden talent is listening. I'm a great listener. I think that's part of what an ingredient of success. If you're working with clients and things like that, you've got to learn to listen. And that's hard for someone that was trained as an engineer. We don't like to listen, typically, but I come from the IT space back in the day. And I think evolving as an entrepreneur, learning to listen to clients, I think is something that is one of my ingredients.

Tim Fitzpatrick
What's the best piece of advice you've ever been given?

Erick Simpson
The best piece of advice of advice I've ever been given was by a fellow entrepreneur when I was building my IT business. And the piece of advice was become friends with the word no. Learn to say no. No is the one most important word, he said, that when you learn to use it effectively, will get you past business growth bottlenecks. And how right he was. When I started saying no to clients because they didn't fit my ideal client profile, which I know we're going to talk about today, it solved so many problems for us. And it allowed us to focus on working with the clients that we wanted to work with, the clients that were growing, the clients that saw us as their expert and trusted us to build their business.

Tim Fitzpatrick
I love that. Another great quote that has always stuck with me was when you say yes, you need to make sure you understand what you're saying no to. So a different way to think about that. But what's one thing about you that surprises people?

Erick Simpson
The one thing that surprises people about me is that I'm basically an introvert. I still have that inner engineer in me. It's difficult for me to engage and speak and talk to people and be on all the time. What I'm doing when I do that is I'm adapting my behavior. Those of us that follow behavioral profiling or disk or things like that, you know that folks that are extroverts or folks that are in sales or customer service are very animated and talk with their hands like I'm doing right now. I am the opposite. So on a scale of 0 to 100, that measures that I in disk, I'm a 7. So I'm adapting my behavior and I speak a lot on webinars and I speak live at events and conferences and I engage with clients. But subconsciously, when I'm done with that, I've got a recharge. It takes me a long time to recharge. So that's interesting to people is they think, Wow, you're adapting completely opposite to what your natural behavior and comfort zone is. That's the thing that we have to do as business owners and entrepreneurs to be successful is to grow outside of our comfort zone and adapt.

Tim Fitzpatrick
What does success mean to you?

Erick Simpson
Success means having the time that I like to have with my family and friends and enjoying everything other than working to support that lifestyle. I think success at a certain point in time... That's one thing that we don't have a lot of and we can't get back is time. So I'm enjoying the time I'm spending now with family and friends at this stage in my career.

Tim Fitzpatrick
Where's your happy place?

Erick Simpson
During COVID, during the lockdown, we all went through this. I'm a big scifi nerd. I'm a big movie fan. I love going to movies. I love seeing movies in IMAX and Dolby Atmos and all that. And during COVID, I built, I'm going to air quote this, poor man's home theater here in the house. So the happy place now is when I'm trying to recharge myself, I just go into my little home theater there and just watch something that has great sound and great story and great special effects. That's my escape hatch.

Tim Fitzpatrick
I love it. I don't know if you know this about me, but the first business I was a partner in was a wholesale distribution company, and we sold home theater equipment. There are some seriously cool home theaters.

Erick Simpson
Oh, boy. We could talk to tech on home theater.

Tim Fitzpatrick
Once you have sat in one, man, it's hard to go back.

Erick Simpson
So you'll recognize when I say I built a 7.2.4 set up with Dolby Vision in a room that's like 10 by 10. It's insane.

Tim Fitzpatrick
Yeah, that's a lot of speakers for a room that size.

Erick Simpson
Yeah, it'll be so fantastic.

Tim Fitzpatrick
What qualities do you value in the people you spend time with?

Erick Simpson
I like folks that can be vulnerable and low drama and appreciate the moment that we're in. I like folks that are genuine and are interesting. And like I say, just let's experience the moment and not get too caught up in every little thing that might be wrong in the scenario. I mean, you've been to dinner or events with folks, and the folks that are simply just complaining about every little tiny thing, it spoils the atmosphere, it spoils the mood. It goes back to what I said before, what I look for is just harmony and experiencing the time we have left with our friends and family and whatever we're doing. So you won't find me complaining too much if my order is a little bit off when I order a meal in a restaurant and causing a big commotion. It's just one of those things, where hey, that's like people are people. And it's just a different experience when you let go and be connected in the moment with the person or people you're with.

Tim Fitzpatrick
Eric, tell us a little bit more about what you're doing now. You owned an MSP, you sold it. You've shifted gears a little bit. How are you helping folks today?

Erick Simpson
I built and sold one of the first MSPs in the industry back in the early 2000s. Then I launched MSP University where I worked to train about 30,000 IT providers all over the world. Over the next eight or nine years or so, we were doing boot camps and workshops, live events, we're doing webinars. Today, I consult and coach with IT business owners to help them improve their operational efficiencies, marketing and sales outcomes, and performance and grow the value of their businesses. I also work a lot with vendors, helping them build great channel programs and help recruit and enable their partners to succeed and go to market together as a successful team.

How to Create an Ideal Client Scorecard

Tim Fitzpatrick
Awesome. Let's dig into raising our rates and boosting profitability, right?

Erick Simpson
Let's go.

Tim Fitzpatrick
I know it is all too common for professional service firms to have existing clients that aren't in alignment with current pricing. How does this happen in the first place?

Erick Simpson
Well, I think one way that it happens, Tim, is when we first open our doors, and I know that your listeners and viewers are probably been I've probably built their businesses, and at some point remember when we would take any business that came our way, Tim, because we had to keep the lights on, we had to pay the bills, and we're collecting all these clients. And sometimes they aren't the perfect client, but they may not be the client. I'm going to steal a quote from Batman, right? So they may not be the client that we want, but they're the client we need. So talking about Batman and Gotham City, right? You get the quote. So we're going to take that business and we're going to grow over time. And as we mature as business owners and entrepreneurs, we begin to adjust who our ideal target prospect is. Well, guess what? And when we start doing that and we become more mature, we're selling those new client services probably at a higher rate. We're increasing our maturity level. We're really beginning to understand what our true cost of service delivery is and what our cost of support is, and we're adjusting our pricing to meet some a target margin or markup over time. And because we're building our businesses with, I will argue, also more mature business owners and strategic clients, it sometimes is tough to go back to those legacy customers that we first brought on because they came to us probably because we were cost effective. They're worried about what things cost, so they're not thinking very strategically. They're always thinking about what things cost. So it's challenging to get them to move up or raise their rates in many cases. So what we do is we say, Oh, you know what? We'll address that later. But we're so busy bringing on these new clients, we're onboarding them, we're selling more services that we tend to find this gap. I would argue that our costliest clients are probably maybe some of these legacy clients, our oldest clients where we were still trying to figure out how to price our services for profit. So I think that's one way that we get this gap of what our next client is paying versus what our costliest client is paying us.

Tim Fitzpatrick
Yeah. It's so interesting you mentioned that, Eric, because I talk about this all the time as well. It's natural, right? We get into business and we just work with anybody that has the heartbeat and money to pay us. As we gain more experience, we realize that not everybody is an ideal client. Either we didn't enjoy the process, it wasn't profitable, we didn't get good results for those people. Over time, it's so important to start to hone in on who our ideal clients are because everyone is not a fit. I know one of the things you touch on with ideal clients, I love this concept is you recommend creating an ideal client scorecard as this first step in addressing this process. Can you unpack that a little bit for us?

Erick Simpson
Sure. So in a nutshell, what I recommend is, over time, we may grow our client base and it typically may look like three segments. And I call those A, B and C. So you have your eight clients. Now, these are the clients that are going to pay you what you ask because they value having you on as a strategic advisor, as a strategic business partner for them. And they are more strategic, they may be more mature, and they trust you to do things. Then you may have your B clients. Think of a pyramid of clients. The A clients are the very top... Think of in thirds. You know how a pyramid gets wider as it goes toward the base. As are your most prized clients, probably your most profitable clients, the ones that trust you the most, you may have more time invested in growing that relationship. Then your B clients make up the middle part of the pyramid. Now, these are clients that you may not yet have had enough time to grow into an A client relationship, but there may be some C customers in there as well. Again, these folks are a little bit more profitable than your bottom part of your pyramid, which will be your C customers. And again, these may be the customers that are the most cost conscious, that are the noisiest, that give your support team fits sometimes. So when we understand what our A clients are, identifying, boy, these are the clients that we want to work with all day, every day, then I encourage you to build a scorecard that says, well, what are the eight or 10 traits that make up an A client? And it can't all be about do they have budget? Because we've all had clients that have had plenty of budget that we have fired because the relationship just was untenable. You can't pay me enough. I mean, have you heard your staff say that? You can't pay me enough to take that call from that client. But these are other qualities, like, are they growing? Are they strategic? Do they trust you? Do they pay your invoices on time? Yes, there is a component of getting paid, right? Do they have the strategic meetings that you require in order to guide them through their growth so that you are helping them through their growth period and they don't feel like they're outgrowing or outpacing you? I love this one. Is it someone you would enjoy going out and having lunch with or having a beer with or a cocktail or wine or something like that? Some of my best clients, Tim, have been folks that have invited me to their holiday parties and events and barbecues and things like that. Now, that's a great client relationship. We'd be lucky to have clients that we have relationships with. I've done the same in return. So it blurs the line between client and friend at that point. And some of my oldest clients are still friends of mine. So identify what that scorecard looks like. And then when you're going out qualifying for new prospects, you're mentally identifying where they score on your scorecard. And be very, very critical of this when you can. I know that it takes time to get to that ideal client every single time, but the more that you do this and the more that your business matures, the scorecard then becomes it. I know clients that I work with that if a client does not check every single box on the scorecard, then they will move on because they've gotten to that level of maturity and experience and they're charging for that experience for clients. And so they want to make sure that when they work with a client, they're actually helping that client become more profitable. It's not simply by filling a gap or doing some a transactional service, but through that relationship, they're actually helping that client build and grow their business. And that client realizes that. And I think that's the most satisfying thing that I appreciate when I'm working with clients is moving the needle together and feeling like we're part of a team and they're not just relying us to do everything and then have an update meeting here or there to find fault with the things that didn't get done. We're in this together, let's grow together. So identify what those qualities are, build a scorecard, and then here's the second part of it. Not only are you qualifying against the scorecard for new prospects, but now the second part is score all your existing clients against the scorecard and see where you end up.

Tim Fitzpatrick
Do you see this scorecard as an extension of ideal client profiles or buyer personas, whatever you want to call them? How do you see the scorecard integrating with ideal client profiles?

Erick Simpson
I think it's a component of it, because the scorecard, I think, rates more the organization and the structure and the maturity of the organization. The persona is more who is it that I'm creating my targeted messaging for? Who is it that I'm trying to build interest and curiosity in with my marketing so I can turn a marketing qualified lead into a sales qualified lead. So I think the persona building is critically important for marketing success. And I think the client scorecard is probably critically important for when you're qualifying for that sales opportunity because at the end of the day, we don't want to churn clients, right? So these are the clients that we want to work with and we can see ourselves working with for as long as we can maintain that relationship. That's what the ideal client scorecard should represent.

Tim Fitzpatrick
I love it. And as you've discussed, it's a measuring stick that helps guide that decision. So it makes, is it a yes or a no, a much more

Erick Simpson
objective.

Tim Fitzpatrick
Yes, thank you.

Erick Simpson
More objective lens. And also it makes it easier to train your marketing and sales teams when you've developed the personas, when you've developed the scorecard. So now the sales team can go out and understand what are the other qualifiers that make this a great opportunity or not so great of an opportunity. Again, it's not simply because there's a need and we have a solution and they have budget. It goes beyond that. And maybe that's how we started when we started building our business. Hey, do they have a need? Do we have a solution? And back then when we're immature, it's like, how much budget do you have? And will we do it for them? Now it's more like, okay, well, here's the budget. Can we meet this budget? And how do they rate within these other six or seven areas of assessment?

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The 4 Things Erick Learned When He Chose to Fire Some Clients

Tim Fitzpatrick
Once we get done, we've got our scorecard. Now, one of the things you just said was not only are you using it with new prospects, we're going back and looking at our existing customer base or client base. We're going to need to fire some clients here. I know that you did this with your own MSP. What are a few of the things that you learned in going through this process?

Erick Simpson
I'll say, and I'm probably reflecting what a lot of your listeners and viewers feel, this is very awkward. It's painful to exit a client or fire a client. Probably the only thing that's more painful is letting go staff, firing staff for whatever reason. It's tough to do. When you're looking at your client list, you've segmented your client list into this A, B, and C segmentation, and now you're scoring your clients, you're going to find out that you've got clients that are costing you money. They're costing you money. And this is something that you said, Well, what did I learn when we did this exercise in my MSP the first time? And why I help other clients of mine do this exercise is because we were moving it. Our business model was, we were an IT company. I came from the enterprise. I said, You know what? I want to start my own IT company. So we started an IT company because, hey, we could.

Tim Fitzpatrick
Why not?

Erick Simpson
Anybody can start a business. How quickly you succeed is based on a lot of different factors. So we said, look, we know technology, we know how to build solutions, we know how to deploy solutions. Let's go out and build this company. So we were selling IT services to small businesses and we were selling projects. And back then, this was before Manage IT Services. Manage IT services is today known as we're going to offer this suite of services, everything that's contained in our statement of work or this box for a flat fee a month. It's a subscription type of business model, but it gives clients and business owners the peace of mind knowing that their IT is being managed, it's being monitored, security is being managed, and we're patching and updating systems, and then we're providing help desk services and things like that to the end users to help that business operate. They're outsourcing that component. And so we decided early on, hey, we're going to transition. Well, it wasn't early on. We launched the IT practice in '97. This is about 2004 now. And I had built call centers and service desk in the enterprise when I was doing that as an enterprise CIO, CTO. And so I wanted to do the same thing for our company. But the software and the applications were simply so costly, it was preventing us from scaling that I actually wrote our first trouble ticketing system. So when we started seeing these applications come down from vendors that were now targeting smaller IT companies that were ticketing systems. They were monitoring, patching, and updating systems. I now had an affordable way to build our own service desk, and then we decided to create what we call flat rate IT services. We didn't even know it was called managed services yet. So we started selling these services and the new clients that we brought on, we went to our A clients first. Remember, we had built this client base of probably 200 or so customers. We really were immature through that process, but we knew who our best clients were. That's easy. And so we started this ABC strategy to say, we want all of our clients to move toward this new flat rate model because now we can scale much more broadly. We can invest in new platforms and services because it is a subscription model. Not every client is as noisy as some of our other clients. So you're making more margin overall if you're doing it right. So we made a lot of mistakes along the way. But one thing, once we got through the implementation and everything and we had about 67 or 70 clients that said, yes, we trust you, we'll subscribe to your new services. All the rest of these clients, they were generating about $50,000 to $60,000 a month in just reactive break fix service. I was being pressured by my team to go all in on managed services because we were still dealing with the firefighting of these customers that just wanted to call us and want us to immediately respond and drive out there and fix their problem right away and then haggle over the invoice or slow pay us or want to negotiate the price or something like that. I finally agreed. I wasn't happy about it because revenue is revenue, at least at that level of my business business maturity, right? Yeah. But we did exit the rest of those customers and we went and found other IT providers for them. I wanted to make sure we took care of our clients no matter who they were. So we exited them. And a couple of things that I didn't expect, Tim. One thing was, once they were all exited, we were actually more profitable. Can you imagine that? We were generating 50 to 60,000 a month in total revenue because of the invoice haggling, because of the write downs, because of the slow pace, because of the stress and all the extra time it took to support those clients, we were actually more profitable when we exited them, which surprised me. The second thing that I wasn't expecting was that as they exited, about 95 % of our customer service challenges went along with them. They were causing all of this extra stress and anxiety for me and my team. Remember what I told you, my happy places and how I... This was really something big. Then the third thing, I'll throw a bonus one in there that I really suspected but didn't expect to this degree was the morale of the organization, of the technicians, shot through the roof when they saw that we were actually taking action and exiting these clients that did not fit our ideal client scorecard now. And when I stood up in front of them and said, look, we are only taking clients that look like this now. They were so excited and the morale shot up. Oh, and then here's the fourth one. We were now able to scale so much more broadly. In some cases, it may take twice as many resources to support a noisy C customer, the same size as maybe two A clients. So think about that. So there's a lot of KPIs that will support not engaging with unprofitable, noisy clients. And so those are four. You asked me for two, I gave you four.

Tim Fitzpatrick
Yeah, you did.

Erick Simpson
And hopefully that helps because it's something that we actually live through. And now when I work with a client, the first thing we do is look at their client list, we look at their agreements, we look at their cost of service delivery, and we identify what they should be charging and how many of their clients are paying that and how many aren't. And then we put into place a strategy to begin increasing those rates over time. You're never going to get someone that is paying $50 an hour or less than your newest client to true up that far. But if you want to save them and keep them, and some clients do, they've been with me from the beginning, so maybe incrementally we can get them there. But it may take years to get someone and you may never get them true it up. So the advice is start looking at your client list early, start identifying the folks that aren't true it up to your current rates and begin a strategy to get them there as quickly as possible. In fact, I recommend raising our rates every single year, especially when the economy is tough because the argument can be made to your clients, hey, your costs of doing business are going up, you're raising your rates, we want to continue to support you, so we're going to have to have a rate increase as well to keep ahead of our rising costs. This isn't a strategy to take advantage of clients, but, hey, our vendor costs are going up, the cost of our tools are going up, we're adding more services and solutions to our solution stack to deliver even better service to our clients. I mean, the cost of travel, fuel, business insurance, cyber liability insurance, I'm going to add all these things together, and we need to stay abreast of that. The worst thing that we can do is not be around when our clients need us. So that's how I'd like everyone to look at this is, Hey, we need to make sure that we are in business and we are healthy and we are growing in order to support our clients.


Tim Fitzpatrick
Eric, would you say that the four benefits, the four things that you learned when you got rid of clients that weren't a good fit anymore, would you say that those four things, I mean, they're not just relegated just to your experience. Do you see those popping up-time and time again as you work with clients through this process?

Erick Simpson
Yeah. It's one of the things that we look at when we do an assessment of an organization. And I'll say this, Tim, every business has the same challenges. It doesn't matter what we're doing or what we're selling or who we're dealing with. We have the same challenges. And I call them the 4Ps. So there's people, process, platforms, and products and services. So let's take processes for one. How many clients do you work with, Tim, that could use documented processes to tighten up their operations? And I'm not talking just in one business unit, but as an organization, when we can document our processes for marketing, for sales, for service delivery, for finance, for HR, it makes us more efficient. And it allows us to onboard new folks to the organization much more quickly. And it allows us to scale much more broadly. So everyone is doing the same thing the same way, also gives your clients the same experience. In my business, clients tend to like to talk to their favorite technician or engineer. Well, guess what? When every technician and engineer is doing the same thing the same way, then the clients will accept support from the next available technician or engineer. It allows us to scale more broadly. So process is a big one. Platforms. We all use different platforms to operate our businesses. I don't care what business we're in. We have financial platforms, we have operational platforms, we have marketing platforms, we have sales platforms, we have service platforms. How well optimized and configured are these platforms? I could sometimes come into clients where they're running their platforms the way they subscribe to them off the shelf. No optimization, no configuration, no integration, which again now makes it tough to measure performance because if they're not integrated, we're not getting the reporting that we need, we can't hold our teams accountable to performance if they're not optimizing configured properly because maybe it takes them two or three times as long to execute a task because they're having to jump in all these different platforms. So there's a lot of optimization and automation. We're talking about automating things now, and with the advent of AI, when used for good can be so beneficial to taking care of mundane task and allowing your team to do what only they can do. We don't want them clicking the mouse 15 times to produce an invoice or a sales proposal or to deliver service. We want to have automation do more of that so that our most valuable asset, our staff, are able to interface more closely with our clients to build those close relationships and to sell more and build more trust. Then we have products and services. That's where we're looking at the cost of delivery, bundling, pricing, and positioning those services. I like the good, better, best way to bundle and price services because no matter where a client is in their business, they may have more budgets, so you can move them up into a higher level of service, a better tier of service, or an economic situation may impact them, or you can move them down to a lower tier, but you still maintain that relationship. And you're standardizing on everything that's in those bundles of services. So again, you're increasing your efficiency and ability to scale. And then the last P is the people. And that's the toughest one. We all know, right? How do we lead our team? How do we select the right person to be on the right seat on the bus that is our business? We have to have a scorecard. We have to have some behavioral profile. And we want to have the folks that are wired naturally to do the tasks that are required in that position. We talked earlier today, Tim, about my 7 from 0 to 100 and being that energetic influencer that I need to be for my clients and for my audiences when I'm doing what we're doing right now. Well, every one of us has different behavioral strengths and challenges. And I see this mistake done a lot where in my industry, we want a technician to go do sales. And those are two completely opposite behaviors. Technically focused is all attention to detail. It's all about getting things done right. And very little, like I said, my eye is a 7. To be a salesperson, to be an effective salesperson, you need to have a much more consistent natural wiring that is the people person. So there's the data people and there's the people people. There's the process people and there's the people folks. And we need all of them in our organization to run properly. So where do we need the process and data people? And where do we need the people and folks to support the role that grows our business? And are we hiring the right folks? And then when they're hired, do we have a clear, documented work role for them? Do they understand how they're being compensated? Are we leading them properly? And I say leading instead of managing, it's different. Are we building other leaders? Are we giving them more opportunities for coaching? Sometimes we do a yearly annual review. And how many of us actually get them done every year? I know some of my clients that haven't done them in a couple of years. I recommend doing them more often, quarterly performance reviews. And when you're doing them more often, they get shorter, but you're giving them guidance along the way. How many times have we heard an employee get a performance review that they don't agree with and say something like, Well, heck, if you'd have told me that, I would have adjusted. I didn't know that's how you wanted it, or I didn't realize that was my responsibility. There are a lot of things wrong in that response. And that all falls on leadership, right? Those are the four piece. So every business has challenges in marketing, sales, service delivery, operations, people, clients. It's just the way to address it is to I look at an organization as a holistic component, not just, oh, we're going to fix sales. Well, if we fix sales, guess what happens? We're going to get a lot more opportunities to come in. Then the folks that are going to onboard those clients will say, Wait, wait, wait. We're not ready to onboard all these clients because we're not ready. Or marketing, you get all these great leads, and then the sales team hasn't been tuned up or trained or coached to go close those leads. So now we have this stop and start business, day to day business. We start something new and then we have to stop because we found another bottleneck. Then we come back and we try it again. I would rather pull four or five levers in an organization, 15 degrees each, rather than one lever, 180 degrees because that ripple effect can actually hurt forward momentum. We want controlled, sustainable growth. So I advise clients not to go all in on one area, but evaluate maybe the top three things that need to be fixed in each key business unit. There's probably more than one, but then prioritize those. Then fix the top one in operations and marketing and sales and service in HR, and then go to the next one and continue. And that allows for more controlled, sustainable growth. But I think the most important one really is understanding your true cost of service delivery and then establishing your target marginal markup that you want to add to that, and then going to market with that new, more profitable service and then evaluating all of your client relationships and do the easier ones first to get them the true up, all the way down to where you get to a point where, okay, these are the customers that don't want to pay more. They don't want to grow. They are those C customers. And now you have a decision to make on how you move forward with them. Remember, my story is my experience in getting rid of these customers that blew me away. They were actually costing us more money to keep them on board. I was just looking at the cash flow and profitability.

Tips for Raising Pricing

Tim Fitzpatrick
Profitability. When you started to touch on this, too, Eric, I just want to make sure there's not something we haven't missed. We determined we need to raise our prices. What are some of the best ways that you found to raise pricing? And are there ways that we can soften that blow for clients?

Erick Simpson
Yeah. And you got to have great bedside manner and let clients know that, hey... And I have a letter that I send to clients of mine that is that rate increase letter that's written in a way that recognizes and appreciates them for all the years that they've been a client and then goes on to state, and this may be true in many cases, Hey, we've been successful at keeping our rates the same for this many years, and sometimes that's embarrassing too. But unfortunately, due to today's economic conditions, it's written in a very personal way, we are forced to have to increase our rates. And this isn't a letter that's written as asking permission, Tim. This is a letter basically saying...

Tim Fitzpatrick
Telling.

Erick Simpson
Telling. Look, this is why we're doing it. And we appreciate the business. We've been able to keep costs in the same for so many years, but unfortunately, all of our business costs have increased and we are now faced with having to increase our rates. So effective on your next invoice, you will see a rate increase of X, Y, Z and put that in place. And in my experience, and this freaks out a lot of my clients because they're like, oh, my gosh, the blowback. I mean, I'm just going to be fielding calls with angry clients. It's the opposite of that. And then say, hey, they will reach out. It's going to be low single digit % of your entire client list that is going to reach out and maybe question that or argue it. And the approach there is, okay, don't give them a pass. Just negotiate their rate increase a little bit less, but not too much less. You need to true these folks up. And if they're simply an impass where they can't get passed, you may even send these out in batches. Like, send them out to your easiest clients first, then send them out to the next easiest clients all the way to you get to. And you know who your C customers are, right? Those folks that may be costing you more money than you're making on them. And then when those folks come back, they may be a little bit more vocal or may say, look, it's just not in the budget. Then now you've whittled down from the entire unit of your clients, the small subset of clients that may have a problem with the price increase. And at that point, you've got to make a tough decision one way or the other.

Tim Fitzpatrick
Yeah. You're going to let them go or what are you going to do?

Erick Simpson
Well, remember, you've raised your rates on everyone else. So now if you do let them go, you're not going to be hurting that bad. That's the strategy, right? And then moving forward, every new client that you bring on, raise their rates a little bit. And then at the end of every year, you're going to institute a price increase. And it can't be egregious. I think 5 % to 8 %, maybe 10 % in a good economy, depending upon what you're charging, doesn't create too much stir. But right now, with the macroeconomic conditions that we're going through, it's going to be challenging to, across the board, ask for a 10 or 15 % rate increase. So just be mindful. But I'll take progress over perfection every time. So get your rates increase, get the letters out, deal with the folks that are going to want to talk to you about that and negotiate it down a point or two, but not too much. And then just now this is now a yearly thing where you're reviewing your clients and you're looking at your A, B and C. Your C's are your C customers and every year determine, do they stay or do they go? Because that's the other discipline now of how do you become more profitable year over year, you're going to want to get rid, continue to exit your least profitable or least revenue generating customers to make room for new A clients that are paying you more and to allow your business to scale more broadly with the existing staff that you have and reduce the need to continue to hire new, costly, valuable team members. Because it doesn't make sense to hire somebody to deliver unprofitable service because you have all these key customers. So it's a big math equation, right?

Tim Fitzpatrick
But it sounds like we need to build this process into our businesses. And once we build it in, it's just something that we do over and over and over again.

Erick Simpson
And that's the other thing that I like to touch on is, it's hard the first time. It's a little easier the second time. It's even easier. And then once it becomes a process, then it's really just an objective business process. It's just like you paying your invoices. You're going to do this. You're going to evaluate. You're doing a performance review for your staff. Now you're doing a performance review against all your clients, and you're going to determine who gets to stay and who needs to leave in order to grow. And I made this analogy. I wrote a blog post about this, Tim. I think that might be how we started talking and I said, You're trying to build a championship team. Say you're a sports franchise, right? Pick your favorite sports franchise. It doesn't matter who it is. But you're building a championship team and your clients are your players. So you want to get to the World Championship every year. But guess what? Every sports team makes player trades to get them to that opportunity every year. You've got to think that way and you've got to think that way and you've got to be okay with making player trades in order to make room for new players that can get you to the championship next year or this year.

Conclusion: Tips For Raising Your Rates & Boosting Profitability

Tim Fitzpatrick
This has been awesome, Eric. You shared a ton of value here. I really appreciate you doing that. Where can people learn more about you?

Erick Simpson
My website is ericksimson.com. That's E R I C K Simpson. Com. That's the best place to get a hold of me, Tim.

Tim Fitzpatrick
Awesome. I love it. Thank you so much, Erick. I really appreciate it. Those of you that are watching, listening, I appreciate you doing so. You want to connect with us? You can always do that over at rialtomarketing.com. You can also get a free scorecard over at revenueroadblockscorecard.com. What that tool will do is it'll allow you to discover and assess which of the nine revenue roadblocks are slowing down your growth. Customized report. Go check it out, revenue roadblocks scorecard. Com. Erick, again, thank you. Until next time, take care.


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