There's a lot to consider as you raise your rates or grow your company or whatever as it's all related. Let's review some of these from the most recent Summit.
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Gene: What is on the agenda, my friend? You're not home.
Carl: No, I am in Palm Springs, California at the Ace Hotel and Swim Club.
Gene: Wasn't it nice to be Carl Smith?
Carl: It does not stop, I'll tell you that. We're here for the second Owner Camp, Palm Springs. We had Owner Camp Palm Springs I, which was in December, and we had a wait-list of over 20 people. So we said, Hey, let's do a second one.
Gene: Let's do a second one.
Carl: Here we are. And I will say, it's been really nice. It's just-
Gene: I bet.
Carl: It's something about getting together. Everybody's sharing their vax cards. Everybody's being really smart. It is one of those things where you find yourself with a group of people, and then as soon as you walk away from those people you're like, Mask up. But who knows if the virus is paying attention or not, we'll find out. But it's just so great to be here. And Gene, one of the craziest parts is in December we're having all these conversations, and a lot of those conversations were really heavily around accountability. And one of the struggles that a lot of shops were having, owners specifically, was how do I hold somebody accountable without them just leaving to take that other job in the big [inaudible 00:02:32]?
Carl: And it was like blackmail, find something out about their family. I don't know. It's just one of those things, right? What's interesting this time around, the two biggest topics so far, we're just going into the second day, are one: How do I step back as an owner? I think everybody's like, it's been a long two years. I'm thinking I need to-
Gene: You need to get out of this.
Carl: ... step back. And on top of that pricing increases because you're going to have to pay that CEO and you still want to get paid.
Gene: You still...
Carl: I won't be able to afford the 30% increase in talent. You have to be able to do all this stuff. So I thought it'd be a great episode for us as I'm kind of in the thick of it. Just to talk about raising your prices. One of the things that's amazing to me and most people know this that are listening to the show because you're running a shop or you're in a shop. And the cost of talent has just gone through the roof. Cost of every role has pretty much increased and people use 30%. That's just something we've adopted. And we just say now. Well, it's gone up 30%. I'm sure there's some level of research or something, or maybe it's just personal experience people.
Carl: But with very few exceptions only occasionally do people talk about raising rates, and this has been going on for well over a year now. The only way to be able to afford to be in this space now is you have to raise your rates or you're going to have to really rethink what it is your company does and add enough value to it. But account management was another one that was really big yesterday. We're having this conversation, it was going great. But then account management came in and it was like somebody threw gas on a fire. It was just the whole... Everybody was just ready to go. So growing the clients you have versus chasing new logos. And so to do that, when you think about increasing your prices with the same clients, you have to ask yourself-
Gene: It's harder to do.
Carl: ... how is this going to go?
Gene: So what are some of the stories you've heard? How are people doing it? Or what are some of the strategies that they're throwing out there for approaching it?
Carl: Well, I think, and obviously I have to maintain the confidentiality so I won't-
Gene: We need names.
Carl: Who said what? Okay. It was me. I did it. But I think the thing that I heard yesterday that made the most sense to me was right now, every client is surrounded with the same news that you were surrounded with. The great resignation, the great realization, people aren't taking the jobs they used to take, there's a huge increase in cost to have the best talent or even talent. And so now is the time where you really better do it because a year from now, if that conversation isn't happening, those clients aren't primed to expect it.
Gene: Makes sense.
Carl: And the thing is, I don't know this answer, but it doesn't feel like it's a net 30% increase in your rate to cover a 30% increase. I'm not the best at financial stuff, but it seems like you're going to have to increase it more because you also have to expect that this isn't over. And you can raise rates once, but it's a lot like a layoff when you have the second one-
Gene: They're like, what are you not doing right?
Carl: Wait a minute. You don't know what's going on. I'm out of here. That to me was really interesting. I also had a great conversation last night. We had a little happy hour and I was talking with one of the owners and there's this realization that if you double your rate and lose half your clients, you're making the same money. So realize you're still going to have clients that you lose and that's okay. Because it's going to take less time to make the same money.
Gene: That's a strong thought. Because you assume everything's going to stay the same in terms of everything else except the rate increase. The math doesn't always work out that way.
Carl: No, but you've got to expect that you're going to lose a few people.
Gene: So have there been any, I'm curious, any discussions about growth and raising rates? You know what I mean? In the gym industry, there's this thing where 150 members can be more profitable than 250 members because the infrastructure you have to have more coaches, more space, more equipment. The math doesn't really work out in the end as you're 150, when you already have all the stuff you need. I'm curious about the growth and the raising rates at the same time.
Carl: The growth conversation actually is on the agenda for today. And so we'll see, we'll come back to that one.
Gene: Part two next week.
Carl: Part two!
Gene: That's part four.
Carl: Peace, everyone. But I'll say that a lot of the shops, some of the conversation is around... So shops, they're smaller. I'll say that this group, the smallest shop I think is right around 11, that includes contractors who are pretty permanent in there. And the largest is over 300. So that's the breadth of what we have.
Gene: It's a big scale.
Carl: And the shops that were in that 10 to 15 range, a lot of them doubled in size. A lot of them went to 20, went to 25.
Gene: Over the course of the past two years?
Carl: Yeah.
Gene: Wow.
Carl: Some of them just last year. But they went from 10 to 20. And so that's a huge shift because now you're going, oh, we need a project manager. Or we need an operations person. Or we need somebody who can help us get the work to flow through, whatever it might be. The larger shops, it didn't feel like that was the same. And it's interesting too, because you start looking at turnover and retention. Retention is a huge problem for everybody, but there are a couple of firms that don't have that problem. And what I found that's really interesting again, without giving away any of the confidentiality, the firms aren't having any problem... I'm not saying they're positioned into a certain niche, but they have a certain focus on their service that I think makes them extremely attractive to their employees. Because it's just different enough that you're not going to find another place that's doing that thing. And I know I'm talking really vague here, but I got-
Gene: No, no, it makes sense. Let's use an example. I'm just making this shit up. But somebody who specializes in building sites on Shopify.
Carl: You could [crosstalk 00:09:55]-
Gene: Because I've thought about that. I've thought about that.
Carl: ... something that focuses exclusively on logo design.
Gene: Whatever it is.
Carl: [crosstalk 00:10:00] on. And you're not going to be asked to do other things and that's your passion. Or a writer who's exclusively asked to work on pitch decks. Or something that they just love because they get the [inaudible 00:10:13]. And so I think there's something there. But when we start talking about raising rates, I think that's the other thing is, and positioning is always a big topic. David Baker came up a few times. David C. Baker came up a few times. I'm so pretentious when I say that. I'm sorry, David, if you ever listen to this. The C is 'cause I can. But a lot of his positioning and the conversation gets to how tight do you position? And I think one of the things that came out of that... Because the tighter you're positioned, the more people resonate with you. The more people feel that they are going to get what they need. And to explain this a little bit, one of the shops that was there, that is here, basically they positioned themselves to a time in the life cycle of a client.
Gene: Oh yeah. I get you.
Carl: So when you show up and see their site, what you're seeing is, Hey, if you're transitioning into a new type of company. If your brand doesn't fit anymore. If you need to get all of your web operations moving in the same direction, but you're not sure where you're going, that's when you contact us. And-
Gene: That's [crosstalk 00:11:35]. I'm sorry.
Carl: No, the way that they do it, I think builds trust immediately because they're not talking about Drupal. Or they're not talking about Shopify. Or they're not talking about a product, or they're not talking about themselves. We got in this to build the best. Or their way. That's the other thing, if you think about it back, I remember when I was at the advertising agency, there was the HJ way. Angel had the Angel way. Happy cog had the happy cog way. Everybody had and put way at the end of their name and it made them cool.
Gene: It's all the same shit.
Carl: The reality is we need to focus on the client's way. And I think that is what this shop's done, which has allowed them to stay relatively small, but charge a lot.
Gene: That's awesome.
Carl: People see it. And they're like, that's what we need. We didn't even know that existed. And so to me that makes raising your rates easy if you can get there.
Gene: That's brilliant though. We do that... Sorry. It's like, all I do is run the gym. I still do other things, but it's so fun. So it's sort of like the fun project that I got going on, but we do the same thing. So we just recently went through a whole exercise where we identified the types of avatars, not the big blue ones, but the types of people in our area who would be looking for our services. We identified people that are not necessarily brand new, but they're transitioning from a Planet Fitness to something. They're transitioning into being coached.
Gene: That was one of the main ones. And then someone who's looking to, it's the same ship, but looking to change their type. So it's sort of the same thing and it's funny how we probably coach all of our clients to do this stuff all the time, but we don't do it to ourselves. And if we would just take our own advice and take a second and lay all our clients on the table and look at, what are all the things that we do for all of our clients? We could probably figure out a niche that we fall into.
Carl: Or how they see you. Why did they show up? We talk about this all the time for our clients. We rarely do it for ourselves. But how did you find us, why did you say yes to us? What was that? And what was it that made you feel comfortable? Because I can imagine if I was running a gym and I wanted to specialize, you could have that getting my life back together class where you're going to show up and not worry that everybody is a 14% body fat. You walk in and they're like, Hey, everybody.
Gene: Because that's the thing. People, they want to be around like-minded people. People want to be around people that are doing the same things they are, or thinking the same way, or live the same way.
Carl: [inaudible 00:14:24] to a place they want to get to.
Gene: I think clients in our industry are the same way. I know we have a client that's the airport. When we went in to bid on it, it was us and three other companies that specialize in websites for airports. Which I was like, uh, we beat you. But there are companies that only do websites for airports. That seems like a niche that's going to run out of clients after a while. But not-
Carl: But here's the thing, how many airports are there? They aren't in competition with each other really. So you don't have the footprint issue. And by the time you're done with 10, that first one probably needs help again. That's the thing about another shop here who's positioned themselves or is positioning themselves. They don't do websites, they do web ops.
Gene: Ooh. What is web ops?
Carl: So web ops you basically hand over your entire web operation to them. So they're [crosstalk 00:15:28] every aspect of what your online presence is. Which a lot of people would say, well, it's really a website and setting a posting. No, it's a lot of back office stuff. There's a lot to it.
Gene: Especially if you could do business off of your website.
Carl: If you want to keep your hands off this, we'll handle it for you. I think getting back to the pricing thing again, one of the things that is always a challenge, and this is something we were also talking about yesterday, is legacy clients. And so a lot of people haven't raised their rates in 10 years. And it's just-
Gene: I haven't.
Carl: It's just one of those things. It doesn't make sense because every other industry raises their rates when the inflation hits. Does all-
Gene: Well, all your damn employees probably got raises. Let's just look at the basic numbers. What the hell?
Carl: But if we look at legacy clients, I think legacy clients are a lot of the reasons why we honor those old rates and we feel this loyalty to them. Although we start to get frustrated with them and we start to not like them for no reason, nothing they did. We never told them we started charging more or that we didn't do that type of work anymore. But they were there for us. They lifted us up to a certain point and we feel responsible. Because most people running shops are nice people and they avoid confrontation and they don't want to talk to them. So I was sharing that one of the things we did when we were leaving ExpressionEngine at Engine was we contacted every shop that we knew and respected that did it. And that we thought might be a fit for this because we were going on to doing other things. And then had conversations with those clients and said, Hey, love you. This isn't something we're doing anymore. We're not going to invest it anymore. You need somebody who is, these are some of the people we've met.
Carl: Out of the five clients, one got really mad. The reps were thankful that we had thought about them and one of them said, we're fine to pay the additional money. Our rates had gone from 125 up to 185. And we hadn't told them. We just kept charging them what we'd always charged them. And I know a lot of shops do that and they end up with these different rates for different clients. And then what happens? You get a big project with a client who doesn't pay much. They become the asshole? They didn't do it.
Gene: You just let it sit there. That's important. Is that something that you can talk about early on when you're sort of in that contract phase? I know there's a lot of discussion in slack and stuff about contracts and structure. Is that something you're like, here's the deal. We'll probably revisit this at certain amount of time. Rates will probably go up, just prepare for it, whatever. It's something to know. Is that something you think you should do early?
Carl: I think it's a great idea.
Gene: I don't know.
Carl: I think you could even sign clients... Gene, you've done something intelligent. I'm proud of you, man. So I think-
Gene: Signing off.
Carl: I'm out!
Gene: Got to leave on a high note.
Carl: I think that would be an interesting thing in a contract. What if you said, if you want to sign a three year agreement, we'll lock you into these rates. Otherwise you can anticipate rates going up anywhere from 3% to 5% a year. If you establish that early on and give them a way to lock in-
Gene: That's a solid way to sell it.
Carl: I think that's pretty cool. And just say, look, we're always going to be going after the best talent. We're always going to be going after the best methods and processes, and to do that it's going to always cost more over time. So this is your option to lock in and-
Gene: And depending on the size of the business that you're doing business with, they probably understand that on an operational level. If you're doing business with Fortune 500 or even whatever the next level below that is, I don't even know. But they're going to know operational costs are part of our equation. So it's going to be part of this equation.
Carl: If the parts that make up the product that you sell, if those individual parts go up, if chips suddenly go up, obviously, electronics, the cost goes up. We don't question it.
Gene: We know that.
Carl: If we know that the cost of talent, which is part of what we have, to put together the different products we created, is going up. The only reason I think clients get upset is because they don't know. Or you've got extremely price sensitive clients, which is also definitely a whole nother genre of... And I think that's a big, when you're getting started, you take everything you can.
Gene: Or when you're desperate.
Carl: [crosstalk 00:20:27] fourth or fifth year, you should be able to be a little more selective if you've done good work and kept your work stuff.
Gene: In theory. Depends on your industry.
Carl: Or you take on one that you know will be a great portfolio piece.
Gene: Oh man.
Carl: We would always say, look, we're going to do this, please don't tell anybody that we charged you this because it's way under rate. You get to give us some feedback, but pretty much we're going to drive this from a decision-made process because it's got to work for us. And sometimes they say yes. And then it would never go well.
Gene: No, it never does.
Carl: The thing where we said you weren't really going to have a voice in this? You got missed that.
Gene: Why do you keep talking?
Carl: I'm going to block you on this phone.
Gene: That would be nice. What else we got, man? What else you left with? Just been hitting the pricing thing?
Carl: The pricing, the accountability, the growth, all of these things are still a challenge. But I think the most interesting thing that's going on is everybody talking about stepping back. We have some people that have just taken over their shops. They've either been promoted from within or they bought the company and they obviously want to get in the weeds. They want to understand the inner workings and all that. But for the most everybody's just looking to kind of, how can I... And I think this is where the pricing and accountability and everything comes in. How can I get this to a point where I can step back? I think just kind of ending this, the question of sabbaticals, and I say the question of. That's interesting. Because one person talked about a four-week sabbatical and somebody else was like, I think it's got to be a year. Four weeks is a vacation.
Carl: And to me being two weeks in the middle of this probably four-week absence from the bureau, he says, running an event. So I guess I'm not really absent. But it feels like a long time and it's super quiet. And I think for those of us with entrepreneurial or creative brains-
Gene: That worries you.
Carl: ... it can be really tough unless we find another passion. And that was something one person had mentioned that they were taking mornings off and they were painting. They had gotten back to doing creative projects and things that they did. And it made them feel so much better the rest of the day. So that's another thing to me, stepping back doesn't have to necessarily mean just your role. It could be the amount of time that you're doing it. And if you don't have as much time by default, you have to have other people pick up some of the load that you were doing. I think another thing I heard that was really interesting was one person had redefined their role where they would no longer take anything outside of the company in terms of meetings or calls. So they would only meet with the team, or I guess with people who were maybe external services, like financial or marketing [crosstalk 00:23:37] but they would have no client contact, nothing like that. I thought that's an interesting way.
Gene: That's one way to do it.
Carl: Cut it.
Gene: Well, everybody's going to have their own unique thing that causes them that stress and anxiety in the business, aside from making payroll. But you're going to have that one thing and it could be meeting with the god damn clients. That's not my problem. But it could be, I don't like the financial aspect of it. So maybe you need to bring somebody in.
Carl: I know we're coming close to time here and my leg's falling asleep. I'm positioned in this weird angle just so you can have a great view. I did it for you.
Gene: Thank you.
Carl: I think you wrap it up the real hot take. And I think this is a variation on a hot take from before is for us to move forward these things have to change. And a lot of people are saying all of the clients are starting to hire in-house and all this. Well, they can't afford the increase either. They're all having to find different ways to do it. I think it gets back to, we have to redefine what we want out of running our shops. We have to rebuild our shops to a degree or reposition them, not in the marketing sense, but in the internal working sense to whatever the new output is going to be.
Carl: And we have to give people a reason to want to be there. I got in the poaching conversation again yesterday and I'm not in the heat of this. So I don't really understand it. But I think there's a real emphasis that positioning isn't just to get hired by clients. If you do it correctly and it becomes part of the mission and vision and core values, then it becomes a way for employees to know this is a place I want to stay. And I think a lot of the onus is on building a place people want to be. And I don't think money is necessarily the main driver. It's back to Daniel Pink. Autonomy, mastery, and purpose. They want to know that they're being treated fairly and compensated fairly. But if it feels like something's a hassle, then it's easy for them to jump right now.
Gene: And you're talking about people at higher end salary ranges. The hundred plus.
Carl: For a lot of them, some of them [crosstalk 00:26:05]-
Gene: All things equal. Much more, but all things equal, they are going to be concerned with those things and not necessarily just getting the paycheck, like someone at a $30,000, $40,000 level is just happy to have work. But somebody at that level, they're like, the moon has to align with the sun, bro. You got to make this happen.
Carl: And let's think at this, so account management, the reason it's a hot topic is to make sure that we're maximizing and growing relationships and workload from different clients. How do we maximize the value of that relationship? We don't really have account management for the team. Some people have director of humans or and a director of culture. I think those roles are probably more important than ever. And smaller shops aren't going to be able... that's going to have to be the founder who does it, so you're not going to be stepping back. But I think that's just a big part of it, is making sure that everybody feels like they have a voice and they're going somewhere that they want to go. Not like me. Going to hell.
Gene: All right.
Carl: All right, Gene. Next time I see you I will be back in lovely Jacksonville, Florida.
Gene: Sweet.
Carl: But for now I'm out here in the paradise. That is the desert.
Gene: That picture you sent me was pretty sweet.
Carl: That's pretty great.
