The Truth About Raising Prices

Everyone on SMB Twitter (is it X now?) will tell you to raise your prices. 

“Higher prices = more revenue” is the Big Brain Take you see all over the place business owners chat online.

But what if you do the opposite?

My advice: Lower your prices.

Amazon, Walmart, Honda, Trader Joe’s.

All dominant players because of their ever-decreasing prices relative to competitors.

Let me correct a massive misunderstanding about low prices. They aren’t just a marketing strategy: They’re an operational strategy as well.

When SMB Bros tell you to raise your prices, they’re usually missing a big piece of the puzzle about the low price strategy.

Most of us assume that lower prices = lower margins. In other words, you must be giving up profit by offering lower prices.

In a vacuum, this is true. If you lower your price on one job to close a deal, your margin on that deal will be lower. So offering discounts sporadically is a suboptimal strategy. But offering lower prices across the board is not. Here’s why:

Amazon, WM, Trader Joe’s, and Honda compete on price for a strategic reason that’s much larger than bringing customers in the door.

It creates a flywheel.

Reducing costs > cutting prices > sales volumes go up > further reduction of costs.

Here’s a great write up on the topic:

https://x.com/Molson_Hart/status/1794729253629493734

We are doing his exact strategy at Pavago, our offshore recruiting company.

We lowered our prices and it has increased volume. 

We previously had a business model similar to most offshore recruiting companies: Go to a country. Find talent. Charge customers $3000 to $5000 for a single placement.

While it worked, it wasn’t an amazing offer for clients. 

My partners and I tore it down and built something new:

A lower priced membership model.

Place unlimited offshore talent in your business for $500/year.

We add $329 per hire for some services, including:

• Administrative HR (payroll & contract management)

• SOP Forum & Help Center (fully live in Q3)

• Ongoing Training (Client and Candidate Track)

But that’s it. We used to collect $4000 from a client day 1.

Now we collect $500.

This is roughly 50% to 80% lower than the prices of most similar of our competitors.

We borrowed some inspiration from Jeff Bezos’ Amazon Prime annual membership. Members pay an annual fee to access our low prices, which are still considerably lower than the competitors with that annual membership fee.

We’ve already seen the effects of the low price flywheel take place. Volume shot up and now we have more options for lowering prices, becoming more efficient, and increasing our profit margins (Raise Your Price bros in shambles right now).