Your Clients Want You To Charge More! w/ Mike Michalowicz
Mike Michalowicz author of ProfitFirst expalins why your clients want you to charge more and how they communicate this to you.
He describes what the ProfitFirst is and we discuss implementing the “granny’s jar” system in your practice.
Kate M: Welcome welcome to a very special podcast that we’ve got happening today with a very special guest Mike Micalowicz. Mike, is a multiple author and has joined us to share some wisdom and thoughts, particularly on how you can help your practice get profitable with some really simple tips and tools that you can implement. Now, we’ve got a number of questions that have come from clients and Celia and I have some questions that you and I have that where you would like to put too. So thank you very much, Mike, for giving up your time to join us.
Mike M: Kate, it’s a joy to be here, so thank you for having me Celia. I appreciate this.
Celia C: So we’re going to kick off with “Fix This Next”. We, run a book club every month and we picked fix this next as our first book club book. So, I guess one of the questions was, is e essentially would you change any advice that you’ve given in the profit first based on what you wrote in Fix this Next?
Mike M: Oh, okay. Wow. So you’re linking the two. No, the profit first book, I would not change. I think one thing I would encourage people to do more actively is to implement profit first, even without the confidence that will serve them. I’ve found that , the system, many people are skeptical of profit first or fix this next. And I get it. I don’t create systems because I’m necessarily initially a believer I’m looking to solve a problem or struggle I’m having in my own businesses. And this is where I come from. These are things I’ve tested for myself and once it starts working and I start proving it out, I have confidence in it. So I think the one change I would perhaps make is in the books, just invite readers to try it out at a very simple level to dip their toe in the water. And then if it serves them to build upon it.
Kate M: And I think one of the things I’ve really appreciated from your books is you’re not trying to fix the person I’m trying to fix the process. We’re trying to accept them, recognize it with humans, with verbal, and actually what can we do to put a process in place, but deals with our behavior rather than trying to change, change us too much.
Mike M: Yeah, we, we need to celebrate the fact that we’re human and that we have foibles and idiosyncrasies and differences because that’s what makes us distinct in the market. We also have to realize that there’s certain behaviors we have that can serve us extremely well and fighting those behaviors is the mistake. So it’s interesting in profit first specifically is that I noticed many entrepreneurs and business owners, clinicians are told you got to follow the accounting system, follow the accounting rules and it forces us to learn something new. But our natural tendency is just to log into our bank account, see how much money we have and make decisions based upon that. So what I argue is don’t change that if that’s what our natural tendency is, let’s create a system that uses that behavior to our advantage. You know, changing ourselves is really, really hard. So why not capture who we are and get the results we want. That’s my goal in all my books
Kate M: And for listeners that are not familiar with profit first system, it’s basically granny’s envelopes or granny’s jars that were on the mantelplace , where she was putting aside every single week, the rent money, food money. And you’ve got a jar for all of your expenses, including the tax man, your salaries and profits.
Mike M: Granny was like really smart. My granny, a little bit of a drinking issue, but that’s, besides that really smart about carving up money to its intended use. What granny knew is that our behavioral pattern is that when we see something allocated to a purpose, we often work within the confines of that. So traditionally we have our money clumped together in one bank account. We say, I have all this money to spend, but once it’s allocated to different intended uses, now we go into our bank account and we see, Oh, a certain portion is her expenses. Certain portion is to pay profit taxes and so forth. We will typically work within the confines of what’s available for that purpose.
Kate M: And then we will get creative within those confines to find different ways of achieving the same end results.
Mike M: That’s the best part that was missed by there, there was a study by a, a modern day philosopher named, his last name is Parkinson and we did, he studied how humans, how we use resources. His argument was as a resource expands, its availability. The more time I’m given to do something, the more we consume that resource, the longer it takes to do that thing. But if I constrain time and less time, we work more efficiently because it’s forced frugality or less time, but also get innovative. We find shortcuts. We figure out tricks and hacks. Well, the same is true for money. As we constrain the money, that’s what profit first will do. You’ll take away all that money and start compartmentalizing. It. You’re gonna have less money to do things, which is a beautiful thing because now it’s forced frugality. We don’t spend excessively, but to your point, we become very innovative. We find ways to stretch that money.
Celia C: On that point, in terms of going up to your full allocation target, do you recommend that someone that you’ve put targets in place in terms of how long that timeframe is So you recommend doing a start as small as you, as small as you need to, even if it’s 1% going into your profit account, but wanting to get up to, you know, up to your target percentage, your timeframe.
Mike M: Yeah. Go in slowly. I’m preparing my daughter actually, who’s working on our office now she’s down the hallway. She assigned me up to run a marathon with her. And I’ll tell you the first day of practice, which starts on Monday. I am not going to run a marathon when I stretch. I’m going to learn. I’m gonna start building to that long run. The same is true with Profit first there are aspirational allocations goals. We have, I call them taps, target allocation percentages, but those are numbers that really financially elite businesses achieve to start there could be like trying to run a marathon on the first day of preparing for a marathon. It’s too much. It can cause injury. So we’re going to start with low percentages for many businesses. Some of the allocations, we look at what they’ve done. Historically, we add 1% in, start inching our way there every quarter, we may add another percent and another percent toward, for example, for profit, while also reducing equivalent and operating expenses to slowly reduce what’s available, that transition is much more successful. I’m proud to report. We have over 500,000 companies globally doing profit first. And we found that businesses that successfully do this start slow, and then let it grow.
Celia C: Yeah. I mean, we’ve got so many clients that have started using the Profit First system and, it’s just amazing to see. I was speaking to a client this morning and she’s halfway through building work. S he’s building a custom office for her clinic, that, as she was working from home. And when I started working with her, she was in debt and she was really, really struggling and just couldn’t see any way out. And that was her dream to have this custom-built office and through the profits first system, she’s managed to do that. Oh, I’m so excited for her. Fantastic. S o another question that I had, in the profit first, you recommend, I think it’s the 10th and the 25th of the month that you move the money, is it a steadfast rule. Is there a reason behind those two dates or could people do it once a week or once a month?
Mike M: Great question. So it’s not a steadfast rule as a rule of thumb, I’ll say the reason behind it by one start off that you do have flexibility. We want to do what’s optimal for your business. The goal is to avoid, sporadic allocation money. So what typically happens is when money comes into a business, you’re like, Oh, I have some money. Now I can spend it. So if I have a great windfall of some money coming in today, often, I’ll it all by tomorrow on whatever immediate concerns I have. So it’s very reactionary we want to do is get into a rhythm. And this is money comes in the business every day, hopefully, or, you know, a few times a week. And it accumulates then on a predictable period, we slice that money up to its intended use and then start using the money.
Mike M: Well, the 10/ 25 rule of thumb is that for most businesses, if we do this process on the 10th money mates until the 10th, we allocate money accumulate. So 25th we allocate is that it’ll fund all those accounts, including operating expenses on those days. But when operating expenses are funded, then we can pay our bills and we pay bills on the 10th. They usually will be delivered to our vendors by the 15th, which is mid month is when half our bills are often due. When we do this process again on the 25th, they’ll arrive at our vendors by end of month. There’s usually when the other half of bills are due. So it’s a method to get in rhythm in paying our vendors appropriately and on time, just like we deserve to be paid appropriately and on time. But for some businesses doing this twice a month is not adequate enough. It’s better to do it every Friday or a select day of the week. So many businesses choose that. And the system works just as seamlessly. In fact, in our own business, every Friday is when we do this process. And it’s very effective. The key though, is this, don’t do it sporadically. Don’t say, Oh, you know, I forgot to do profit first. I’ll do it today. We want to get into a regular rhythm. So there’s some predictability.
Kate M: So one of the grizzles that I’m sure you’ve heard many times before is, do I really need all these bank accounts. And what’s this going to cost me an extra bank charges and extra bookkeeping charges and extra accounting charges.
Mike M: Yeah, I get that grizzle all the time. And here’s, here’s my feedback. First of all, realize that banks are not government owned entities. They’re typically independent private institutions, which means they are vendors just like you and I are. Some of them go to a different clinician. You can go to another bank if they are willing to work with you. So banks can and will negotiate. So try that if you haven’t yet. Secondly, are some banks that, particularly now with the advent of online banking and the COVID pandemic, a lot of banks are shifting the way they behave and they’re removing those feeds. But lastly, this, if you must incur fees, look at the costs associated the fees with the gains and profits. We have businesses quadrupling 10 timings, their historical profits within one year. And the cost was, I dunno, 5,000, 500 us dollars, 50 us dollars. And the gain was thousands and thousands. And the interesting thing is for many banks, once you start hitting certain thresholds, they waive the fees. Anyway. So sometimes that fee period is a very short period of time.
Kate M: I certainly found that was the fastest way. Nevermind. Any fancy marketing strategies or anything the fastest, most profitable with my clinics was implementing the profit first system.
Mike M: It’s it’s human nature to look at the downsides like, Oh, this is going to be a little bit painful. I’m not going to do this, but the gain is massive. You know, we see this with exercise. People say, wow, I could be so fit if I simply would start exercising, but it’s so painful to exercise. I’m going to skip it. Well, you got to look at the upside. If you get into this process, it’s not nearly as painful as it looks like from the outside. And the upside is tremendous.
Kate M: So one of the things that is commonly a topic of conversation, is pricing and many clinicians underprice themselves quite severely. How often does pricing come up as an issue that needs addressing or figuring out?
Mike M: Yeah, I would say roughly estimating over 80% of the time pricing becomes an issue. So when you start taking your profit first, you are reverse engineering profitability. Your business will speak to you saying, you know, we don’t have money to pay bills. So you only have two choices. You can cut some bills. And for many businesses, we can cut some where you’re cutting the fat away, but you can’t cut the muscle, the business that hurts you. So it removes some costs, but often increasing prices is the most important thing. Here’s the amazing thing that will have us. Don’t understand. Our clients actually want us to increase prices and here’s the deal they will never ever say, Oh, can you double the rates on me. Can you charge me more. But what they will say as my clinician, I want your full undivided attention. I want the best service you can render.
Mike M: I don’t want you worried and panicked. I mean, could you imagine you start your session with your client and you say, I am so stressed. I have no money. I don’t know what to do. Okay. Let’s start the procedure I can make. No, no. I stay away from me, our clients, our undivided attention. And the only way to provide optimal service is to remove the worry, the financial worry that we have. And the way to do that is to charge appropriately for the value we deliver. You can’t worry about the next client. So if you increase your prices, you can care for your client better. And that’s what they want. Now. Some customers may say, Oh, you increase prices. I am leaving. The customer does that. It’s called a price shopper. They don’t care about the value deliver. They care about the cheapest option. And do you want someone that wants the cheapest option Probably not most customers. And I find, it seems like 90 to 95% of customers say, what took you so long May not. Maybe they’ll use those words, but they say, I love your services. I value you. And I know I was taken advantage of,
Celia C: I think this is going to be absolute music to our clients is because clinicians just struggle so much for putting their prices up. They agonize over it and they’re agonize and they do put their price up. That actually nothing happens.
Mike M: I heard nothing happens. Well, your profit increases. That’s beautiful. Almost none of your customers leave you, which was the biggest fear we have. But here’s, I found so interesting. I heard, and I’m going to bastardize this statistic, but just yesterday, I was listening to an expert who said, if you increase your prices by only 10%, you can lose on the average customer, upwards of 20% of your customers because of the curve customers, some of your patients or customers, do very little business with you yet. They consume a lot of mental space. Some customers, clients, patients do a lot of business with you. When you increase prices. Those customers who do a lot of business with you now you’re charging 10% more. They generally will stay and love you for it. There’s other customers that go away. We may lose a handful, but they were barely making any money for us in the first place. That 10% on our best customers, way outpaces, what we lose. So when you raise prices, you’ll figure out it was never soon enough. You should’ve done this way.
Kate M: So you have another book coming out in September.
Mike M: Well, you staged me perfectly, I appreciate it. Kate it’s called “Different is Better”. And all my books I study by first identifying a significant problem. And then I do the research to see, is there a unique, simple solution by found one with marketing. So many business owners struggle with marketing. And the reason is because they’re using marketing plans. That’s what blew me away. Marketing plans are a strategy for rolling out marketing. But until we know, if the market is going to work or not, a marketing plan could be a problem. If we’re doing something that doesn’t work. So we first need to prove through marketing experiments, experiment, find what works and then use the marketing plan. Different is better. This new book is how to do rapid marketing experiments. And the core I found of successful experiments is differentiation. People notice things that aren’t the same. So, last time I was in England, people knew I was the American because I had a different accent. Very easy to identify. We can link onto it. If everyone is doing email campaigns to market, to their patients, you should do something. That’s not an email market campaign, do different. And your likelihood of marketing success amplifies significantly.
Mike M: Exactly it that’s exactly it. And it’s very hard to do in practice because we want to do whatever else is doing. It’s best practices. It works for everyone else, but doing something that’s different, puts us out there. It makes us very visible. And there’s another element too, just different alone. Isn’t necessarily the only solution different gets noticed. But if it’s repulsive, like I could, I could dress like a clown today. Like, Hey, Yucca, Yucca, bozo. The clown showed up. You’ll notice, but you’ll make, I don’t want to clown. I want someone that gives me good advices professional. There’s an incongruency here. So you must be different and it must be attractive, compelling. The right people might say, that’s what I want. Once you have them engaged, the final step is you must direct them to take an action. Don’t leave an abandoned. Say, Hey, you notice me and you liked me. What you want them to do. Sign up for my email, make a purchase, subscribe to this list. We have to give them explicit and specific.
Kate M: And I think one of the things that can help clinicians not feel too terrified about some marketing and how to go about it and how to conduct a thousand marketing experiments whilst they’re still running a business busy clinic. One of the things that can help differentiate is just being themselves!
Mike M: You’ve identified the magic formula. I was traveling through Ireland and Oscar Wilde, passed away when he was in Ireland and he had a famous quote. He said, be yourself, everyone else is already taken. Boom, that’s the epiphany. If we simply lean into who we naturally are, there’s inherent differentiation. We have to be unabashedly ourselves.
Kate M: Just speaking to the clinicians that might be listening, this is what you’re doing all day, every day in the treatment room, just behind a closed door, you just got to open that door. You spend all day every day talking to people, answering questions, marketing to them the solution to get rid of the back pain and neck pain. You’ve just now got to do the same thing to a wider audience rather than just behind the closed door.
Mike M: Yeah, I agree. I was working with a psychologist who did her sessions or therapy sessions behind closed doors. She then took a video. There was some reality TV show took this video and actually did a psychological session with the people in the show. She was critiquing the show. It was really intriguing and interesting. People are very compelled. So you can maybe do demonstrate some of your services via video or something this way. It’s something you’re already doing, but put it out in a new way that people haven’t seen necessarily much and you’ll stand out.
Kate M: What you’re saying at the end is differentiate. Differentiation can just be being your authentic self, measuring what works what’s attracts, what doesn’t attract, but making sure you have the confidence to have that very clear call to action at the end and keeping that simple. Linking that back to the profit first principles. One of the questions I certainly had was when I was looking at my ops expenses. Well, what percentage should of the ops expenses ideally be going in marketing and client acquisition
Mike M: Y So then we can get a little more sophisticated with profit. First. We start calculating the return. Here’s an example. If you gave me, if I gave you one pound and in return, you gave me two pounds. I’ll keep on giving you a pound, a pound over and over again because that’s called a ROI return on investment. So what we need to do is first we start low, small experiments, use a very small portion of your budget, maybe just one or 2% of op ex to test the market. We have to prove what the return rate is on our investment. Once I start getting that, you know, for every pound I put two pounds are coming out. Now it’s go time. Now we’re going to amplify that. And maybe I want to spend more and more. So there is no fixed number except for start slow test until you prove that your marketing is working the way you want, then start leaning into it to amplify it.
Celia C: That makes perfect sense. I was just speaking to someone that does GoogleAdwords and, you know, he said he could tell clinics to spend a thousand pounds a month, but actually what he does, it says, let’s start with a hundred or 200 pounds a month. Google spend let’s prove, prove it, test it. And then, and then when we know that it’s working, we can start increasing the spin because you have got your return on investment,
Mike M: But that’s exactly right. And that’s a very smart strategy that he shared. And also with a realize that marketing doesn’t live forever. Here’s the irony about being different. If you’re consistently different and people are noticing at a certain point, it becomes an expectation. Cirque de Solei is a good example. The very first time I heard of Cirque de Solei, like this is the coolest thing. Look at all these acrobatic effects are doing and the how theatrical it is. But once I saw it twice, two or three times, I didn’t need to keep seeing it. It was amazing, but it fulfilled me and we get exhausted from that. But the next new thing will intrigued me again. So the marketing that works today, keep on leveraging it, milk that cow for all it’s worth, but at certain points going to run dry and we did try new different marketing.
Kate M: So what we’re describing here is you actually need to understand that the client lifetime value, I’m sure many, many business, it’s not just in healthcare, aren’t doing that. How would you recommend that somebody goes about measuring the lifetime value of clients
Mike M: Yeah. So there’s a real simple, rapid way to do this. Look at what you charge a client, for your service, multiply it by how many times you render that service to that client in a year. And then how many years you have them. And that becomes the lifetime number. So say I charge a hundred pounds per visit. I do 10 visits a year on average as a thousand pounds patients with me for 10 years. Well, that’s now 10,000 pounds. Now I have a number. This is not the perfect number, but it is more than adequate to figure out the investment. Once I know I can make 10,000 pounds from a patient, I may say, well, that’s, that’s worth a hundred dollars bet, but you have to understand this bet. When I do a hundred or a hundred dollars, a hundred pounds of marketing, I do a hundred pounds of marketing.
Mike M: I may not win that 10,000 pound patient. So am I willing to bet that with the risk of it not happening, but the opportunity of trying with another future prospect patient and another one, and that’s where we kind of find this number. Often people discount their marketing budget because they don’t understand the lifetime value. They say, you know, even a pound sounds a little bit much, but the upside is 10,000 pounds. When you start thinking, you can invest a hundred pounds in pursuing a prospect, it opens our mind to, Oh, maybe it’s not just email and a social media ad. Maybe I can actually mail a little box. When I open up, there’s a video of me speaking to them of how I’m ready to serve them, but that may only be 50 pounds. And that is so different. It stands out and get noticed. The likelihood of that 10,000 pound patient is much more likely. So that’s how I do the analysis
Kate M: Where you’re describing here is by actually having this analysis and having this measurements in place, it stops shiny penny syndrome of being convinced by the next marketeer, but their shiny, whatever widget will work for you because you actually got much more knowledge and empowerment about what you already know is working and what return
Mike M: That’s exactly correct. And I’ll tell you the next shiny object is what everyone’s glomming onto. The different factor can go pretty quickly. Now different is also specific to your community. So if, if you’re the first to do something in your community with whatever else is doing, but no one else has done it for community, it’s different. It’ll stand out. I know there’s this app called clubhouse that you’re noticing
Mike M: It’s very quickly going to exhaust itself because everyone in my community is aware of it. So for me to use clubhouse to stand out and distinguish myself is not necessarily viable. But the interesting thing is people run to clubhouse and I’m not picking on that, but as people run to that, it means they’re running away from something else. So my question is what are they not doing. That’s the new opportunity to be different again.
Celia C: We had one last question from a clinician and it’s a very general question and, and an observation. So she listens to a lot of podcasts and she goes, you know, she finds experts in the field and she feels that her perception is, is like most of those experts are not the main childcare provider at home. So she’s trying to run a business and she’s a main childcare provider. And so she wanted to know, do you have any advice for how, you know, main childcare providers can still start a business successfully
Mike M: Yeah. So, well, a couple of things. One is understanding the different types of buyers. And this may not answer this question directly, but, when it comes to selling an offer, you don’t naturally have one buyer. There can be multiple people. There’s, what’s called the beneficiary, the person that derives the benefit of what you’re offering there is the backer, the person that financially contributes to it. And there’s the initial person that makes the initial discovery. That could be a third party saying, this is something we need to explore. So first in that business I’d understand who are the buyers I’m selling into, but the most important thing is regardless of your personal circumstances, you’re the primary care provider. Not the question is what is your area of interest If you have a passionate interest of something, the likelihood of you excelling in that area is much better than not.
Mike M: I love writing books. And therefore when I wake up in the morning, I’m writing away. I think it will be challenging for someone who does not love to write books, to have that same energy and discipline to keep at it. They may have the same potential, but if they don’t have the drive every morning to be working at it’s unlikely, they’re going to get these opportunities to stand out. So I would just say, regardless of your circumstances, what is your true inner driving passion interest areas of intrigue, try to deliver your service offering through that because you’ll naturally excel. Hope that helps,
Kate M: I’m sure it will. Thank you. Well, thank you very much, Mike, for joining us today and thank you very much for answering the questions from the clinicians and from ourselves. You’ve given much inspiration and much thoughts into clarity, to some of the points of discussion that we will very much look forward to reviewing your new marketing book in September .
Mike M: Bye Kate. So it’s been a joy being with you. Thank you for having me and thank you for the good work that you do.
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