Episode 09: Throttling Your Services For Maximum Profit (Transcript) - pixiedustandprofits.com
Implement pricing strategies and techniques to forecast revenue

Episode 09: Throttling Your Services For Maximum Profit (Transcript)

Oct 15, 2019

The

podcast

Intro (00:01):
Pixie Dust & Profits is a podcast for small business owners who love Disney and want to sprinkle some of that magic onto their own businesses. Join your host, Nicole Boucher and Yasmine Spencer. As they explore the mouse’s $12.6 billion operation and break down exactly how you can apply these big scale concepts to your own business.

Yasmine (00:25):
Hello, and welcome to another episode of Pixie Dust & Profits. So unsurprisingly Nicole I spend a lot of time on Disney forums learning about new things that Disney is doing a because we’re just genuinely interested. And there’s a lot of lessons that we can learn that we can put into this podcast for you guys. But one thing that we’ve been hearing a lot lately is that the ticket prices are just too darn high. And in this week’s episode, we really want to take a look at how does he deals with demand by increasing and decreasing prices throughout the year, and how you can learn from their strategies and implement pricing techniques in your business. So we’re going to start off today with the actual tickets themselves, as you know, it costs anywhere from about $109 to a hundred, I think 30 or $40 at the high end to go to Disney for a one day ticket.

Yasmine (01:23):
Now, if you buy a multiple day pass, you typically get a discount there and that’s supposed to incentivize people to stay longer, of course, but for those like one day ticket prices, you might notice that they’re a lot more expensive when we get there closer to Christmas and a lot lower when you’re going in early September, once all the kids are off in school. And the reason for that is that during September obviously demands a lot lower capacities, a lot lower at Disney. So they’re trying to incentivize people to buy their tickets and come out anyway, during these quiet periods and in Christmas, when the part typically reaches max capacity sometimes, and they will turn you away at the Gates. If it gets too busy, they’re pretty, gosh, darn expensive. And that’s something that Disney really uses to help manage not only the amount of people in the park, but to forecast their revenue and anticipate how much is going to be coming in on a day to day basis.

Nicole (02:21):
Yeah. And I just want to like jump in and say that in the past Disney tickets have been like a customer service experience where you could buy a ticket from like 1970. Like if you are going through your basement and you find an old Disney world ticket, they will still honor that today. And so there would be people who would buy tickets like a decade ago and buy a no expiration option, which doesn’t exist anymore. It was a way for them to keep their tickets without them expiring. So if they bought like a 10 day pass, they only use four days. They could save the other six for the next time that they go, this ticket does not exist anymore and Disney still honors. But with this new change, it’s new to Disney fans and they implemented it last October. So it’s been in progress for about a year and their specific wording on why they were changing to this date based pricing was so that way they could quote better distribute attendance at their world-class attractions because they just have such big audiences coming.

Nicole (03:22):
But they knew that this customer service thing was so important because for years, people could buy pre-buy tickets a years in advance of their trip. So what they did was they have this date based pricing. And as Yasmin mentioned, you know, the middle of January when it’s cold and people are in school and they just travel for Christmas and they don’t have any more budget left for vacation, your tickets are going to be cheaper than if you’re going the week of 4th of July, for example. So what they did was they made a refund policy where if you bought a ticket for January, then you happen to cancel your trip. And now you’re going 4th of July. You just pay that price difference between the January 1st ticket and well, not January 1st, that’s probably a busy day, but January 17th and ticket and as part of the July ticket. And then if you’re going to date that is less popular, like you were originally going 4th of July and now you’re going in January. They don’t give a refund and they’re very clear about that upfront. So we’ll talk more about the implications for that and why you should think about refunds and this type of thing. When we get to the business section

Yasmine (04:22):
Right on, in fact, we experienced that recently. I was supposed to go to Disney World in September for my baby moon. And we ended up having kids lot, unfortunately, because our little one wasn’t quite ready to let mommy have some fun and have her last Herat Disney without a kiddo. But the ticket that we bought for my husband, Dylan, cause I have an annual pass. We can use that again on our next trip. We just have to pay the difference. If prices increase that’s all, which was really reassuring for me because at least I know that a couple of hundred dollars that we had spent for his ticket, isn’t going to go to waste. So speaking of ticket prices, but the other place where we see Disney, you know, increasing and decreasing prices to deal with demand is at the special events, those hard ticketed events.

Yasmine (05:08):
So Mickey’s not so scary Halloween party. I want to go every year, even though I have been to it twice already, it’s just that magical and fun for me. And one thing you’ll notice is that the hard ticket prices will increase the closer you get to Halloween, but also on Fridays and weekends. So basically times of the month, when people are more inclined to go or just have more flexibility to go versus the mid-week parties on like Mondays and Wednesdays and Tuesdays, when locals primarily in Florida, probably aren’t gonna, you know, do the Trek to, to Disney, to spend a night out with their family because that party ends pretty late at night.

Nicole (05:46):
And they’ve also added more dates to those parties. So I was at Disney World in August and there was a, Mickey’s not so scary Halloween party already in August, all the Halloween decorations are out and up. And so, you know, they’re moving those dates earlier. So they’re getting that revenue earlier, but they are also the cheapest ticket price because who wants to dress up like a pirate and put face paint in on like a 95 degree day in August. So, you know, there are trade-offs to coming earlier too.

Yasmine (06:15):
So basically what we’ve learned is that half of the year at Disney is basically holiday magic time, which I’m not hating personally. Like I love fall and Christmas, so I’m kind of here for it.

Nicole (06:26):
I can’t wait to go back to the Christmas party. The first time I went, it was very crowded because it was a Sunday night and one of the first ones. And it was a lot of people. So I can’t wait to go back another time. The other thing I want to talk about with the rates is it’s not just the ticket prices, it’s also the hotel rooms. And if you have ever tried to plan a Disney vacation, you first have to decide we total you’re staying at. And I know we talked about this at a previous episode, how they have, you know, 25 different hotels across the property, but they also have all the different room types. So you have the room that looks over the parking lot. You have the room that looks over the pool. You have the one that looks over the login and you have the ones that are close to the lobby and each and every single one of those rooms has a different price point at a different time of year.

Nicole (07:12):
And depending on when you’re booking, the other thing that Disney can do with all of these different like rate promotions is if they’re struggling a little bit and struggling, meaning they’re not at max capacity, they can actually offer discounts to get people in the doors because they know that their prices are high for certain times of year. And if for some reason, their seasonal data show that they should have so many people. But if there was a big hurricane season, for example, and people don’t have confidence to fly with the max planes being grounded, that could impact them. And so what they can do is offer discounts to annual pass holders, to Florida discounts Florida residents, and then they can fill in those rooms, but it also doesn’t hurt. The experience of it is a busy time of year. The rates are different for the different rooms at different places.

Yasmine (07:59):
Other promotions that Disney implements are not always like cash discounts, but the Disney dining that they offer. So depending on the room type that you booked during certain promotions, you can get a free Disney dining plan, which ranges if I recall correctly from around like $60 per person per day to I think over a hundred on the high end and you get a different mix of credits. Now we could talk about the Disney dining plan for ages. So I will end it here, but they use those promotions to incentivize people to come during the less popular times, if they’re not quite where they want to be at room capacity because you know, food at Disney is a big expense. Like that’s probably where a lot of your money is going to go. Especially if you’re going to be spending on some of the more fun experiences, you know, having lunch or dinner at Cinderella’s castle, that’s super fun, but also very expensive. So by offering these dining plans, it helps families, you know, have a big chunk of change that they would spend at the parks taking care of, making it a little bit easier for them to, you know, make the investment, to fly down to Disney and spend a couple days in the parks

Nicole (09:06):
And those free dining promotion periods usually coincide with the food and wine festival at cuts. So if you are a foodie, you have plenty of opportunity in front of you to enjoy everything that Disney has to offer.

Yasmine (09:19):
So one trick for anyone who has the Disney dining plan and is going during food and wine, your snack credits can actually count for a lot of the food that they have at the kiosks in the world’s showcase. So, you know, you might want to save some snack credits for your Epcot day.

Nicole (09:36):
That’s awesome. Because I usually use my snack credits on those like ginormous cinnamon buns and magic. And they’re my favorite. So you know, talking about all of this stuff from a business perspective, you know, we kind of hit on it a little bit earlier, but this way of planning their revenue helps them plan, how many employees they need to have on site, not just the people that are in the stores that are taking people out, helping people get in the ticket Gates. It also has some resource plan. If you know, how many people are coming because they bought their tickets for a certain date, you know, when they are coming and when they are going to be here. And that’s something that they probably didn’t know before, because unless they’re staying on Disney resort property, which is a significant number of the visitors, you wouldn’t have an idea of how many people are coming, because there are people who stay offsite, who stay outside of the Disney World property. So now they buy their tickets for the days that they are coming and you can pre forecast how much lettuce you need to order for all the burgers that will be sold that week. So not only does this pricing, like keep their revenue numbers stable for the lower periods and inflate it during the periods where there was a lot of people. It also really helps them plan for all these resources that they have to use to keep the customer experience level as high as they like to keep it.

Yasmine (10:53):
So what does this mean for you? What can you learn from Disney about ticket prices and hotel prices? Well, there’s one thing that we’ve learned is that if Disney keeps their prices consistent and demand is always high, especially during those busy periods, what’s going to happen. Well, the parks are going to be crowded. It’s going to be kind of miserable because you’re waiting like three hours to get in a line or to, you know, order from your favorite restaurant and the employees and the resources will be overwhelmed. So you don’t want that to happen in your business. You don’t want to keep your prices consistently low as demand increases because what that ends up meaning is that you’re going to be overwhelmed. Ultimately the quality of your work is going to suffer because, you know, I’m all about hustling and like working hard. But if you’re spending 12, 14 hours a day like grinding, at some point, you’re going to see some diminishing returns in your work and you don’t want that for you. So in if the demand is there, it’s okay to raise your prices and things to keep in mind here that it doesn’t have to be a massive increase at once again, Disney goes from, you know, $109 to like $140 in range. Don’t put me on that, but that’s like the rough increase. So you don’t necessarily have to you know, jump from, you know, charging $500 to package to doubling it because like your demand increases, you obviously want to make marginal increases to keep up with the growth of your audience.

Nicole (12:25):
One thing that I did in the beginning of my business was every like two clients booked or three jobs booked or whatever, I raised my rate, like $50 or $75. And it’s kind of the same thing I’ve done in my like personal expenses when you’re trying to just pay off a student loan early or anything like that. You just add another $25. It’s not a lot, but it does add up over a time that you end up shaving off a couple of months at the end. So if it helps to think of things in terms of like, Hey, I booked two jobs, well, let me go ahead and increase my pricing now, a small amount. It makes it a lot easier, especially if you struggle with asking for money.

Yasmine (13:02):
No, that’s a great suggestion. In fact, I’ve done that in my business too, where with as demand grew and as I saw my sort of available time decrease in Phillip with more billable time, which we’ll get to a little in a little bit, I started increasing my retainer fees by like X amount a month. And one thing that I found was at the rate that people were coming in at it, wasn’t such a huge increase over like the previous retainer rate that I had, that my ideal clients and customers were like, Oh no, that’s too expensive. And no, and on the other hand, what it did end up doing was for people who wanted to work with me, but weren’t quite ready to make that financial investment. It wasn’t a right fit for them then. And I fully respected that and I was okay with that. No, I was prepared for it, but ultimately what it meant was I wasn’t taking on another client on top of my existing load at the rates I was at before, and having to deal with all of these expectations and demands that honestly, I just know to a certain extent that I cannot deliver on and the integrity of the work that we do. I know I speak for Nicole and myself here is paramount to us. And I think one of the big reasons for the successes that we’ve had in our budget.

Nicole (14:12):
Yeah. One of my biggest values in my business is to be a partner in my client’s businesses. And so that means treating their businesses as if they are my own, the financial decisions that are made. The resource decisions that are made are the same ones that I would make if it were my own business. And so any sacrificing quality, it just cuts me to the core because that’s one of my values and I encourage you to know what your values are in your business. So that way it helps you make these decisions. So you can always do a gut check.

Yasmine (14:38):
Absolutely. So how can you raise your prices in your business? So we talked about our strategies. Again, you can look at increasing prices over time. It could be every couple of clients. It could be, if you are at a point where you’re at capacity, have a waitlist, it’s okay to tell people that you can not take on clients right at this moment, but you can take them on at us, you know, in a certain timeframe, maybe a month or two from now, for people in service-based businesses. A lot of what I see that I actually encourage is when they’re booking projects for, so if you’re a graphic designer and right now we are in October and you’re booked up for the end of the year, you can let your prospective clients know that you’re accepting people in January. Another strategy, speaking of January, that you can implement is just increasing your prices annually.

Yasmine (15:28):
It’s okay to let your clients know that your prices have gone up again. They’re not only paying for your time. They’re paying for your experience. And in a year you’re getting a heck of a lot of experience that I think increases your value overall. So letting clients know that your prices are increasing is a okay. What I would encourage you to do though, is give them plenty of notice. So I personally like to give minimum 60 days notice if I’m increasing my prices on an existing client. And the way that I tend to phrase it is that, you know, effective like that date, I’m increasing my prices to X dollars an hour which will impact all new clients that are signing on with me. But for my existing clients, I am grandfathering them in or giving them a grace period, whichever language you prefer to use for the next 60 days.

Yasmine (16:20):
So they will not see an increase until they’re like January invoice, for example. And then what that allows you to do is it gives them time to a like figure out, okay, can they manage the increase most of the time, it should be fine. Cause it’s not like a significant increase in two. It allows you to have an opportunity to work with them, to refine and adjust the package. So at the end of the day, you’re maybe keeping your retainer fees or your project fees the same, but you’re doing a little bit less work to reflect that higher rate.

Nicole (16:49):
The other thing too, that you can do is it’s okay to offer discounts to different clients. I know it might not feel okay, but it is because you have a relationship with that client. And you know, maybe that client offers some other value that is not necessarily a dollar amount. Maybe they have a lot of connections or maybe they’ve referred you a lot to other people that you’ve done, like one-off projects here and there. And so there is a value to that. So sometimes it makes sense to give them a bonus in the price, increase that they’re getting a little bit more than someone else or discount it in some way. I know from my own experience, I have done things like I will have a once a month meeting with you that I don’t put on our billable time. And that’s just extra for us to make sure that like we’re getting our projects done.

Nicole (17:34):
And that we’re on the same page and it’s helpful to the project because that’s something that they might cut because they don’t want that. They don’t want to use their time toward talking, but it is very important to making sure the projects move forward. So it’s kind of a win-win for the process for the client to feel they’re saving a little bit more another thing that you can do if you are like this agency model or you know, a single, a single business owner who does most of the work yourself is you can think about adding team members and like junior associates who can take on some of the entry level client work that’s coming in. And you know, they bill out at a much lower rate than you do.

Yasmine (18:14):
But one thing that you really want to keep in mind there is profit margin. So if you have someone coming in and working with you in your business, you’re typically going to have a rate that you pay them out at, and then you’re going to have a rate that you build them out at. And the reason why this is important is, I mean, in theory, we can just pass on the costs to our clients exactly as we’re paying for them. But you got to think about the hidden costs that comes with managing a team and having a team you’re not only spending your time managing them, training them, onboarding them, and really helping them succeed. You’re reviewing their work. You are giving them access to resources often that you’re paying for. So there’s some overhead costs. It could be it could be as little as a $5 a month Google or Gmail account,

Nicole (19:01):
Right? It has a Gmail account a time tracker social media like tools, whatever they might need, you’re paying for those. And just you, it’s easy to forget that you have to have the conversations with your contractor that normally your client would have with you. So it’s almost like sometimes you have to play the messenger and filter out the client’s wants and desires and to the person who’s helping you on your team. And you need to like explain that client’s vision to them. So it can take some of your time too. So if you are paying someone $20 an hour and then you’re charging the client $20 an hour for that person, well, what about all that extra time you’re spending to make sure that person can actually get those tasks done. So tr do don’t do that. They can just hire that person themselves. If they want to pay them $20 an hour, and then they can have all of those conversations and extra work that goes into developing an employee. Even if they’re not an employee.

Yasmine (20:00):
So the typical agency model, and this is coming from like my advertising agency days, is that companies will basically bill you out at three times what they pay you. So if you’re paying someone $20 an hour, they’ll be billed out at $60 an hour. Now in our world where we tend to work with a lot of creative entrepreneurs or smaller business owners that might not necessarily have those bigger budgets either. The one thing you need to consider is that that three X model doesn’t always apply. So one thing that I typically recommend is just doubling the rate, the benefit here. So the client can say, well, why don’t I just hire them directly? Right? Like, I’d be saving 50%, but the benefit is that they’re vetted by you. They’re trained by you, they know your processes and how work, and if your client is really happy with the service that you’re providing, it’s actually less headache for them to pay a wee bit more to have your team members in the fold versus hiring people themselves, and then having to pay you to communicate with them. Cause sometimes that always happen. Like not always that sometimes that happens when you’re like managing projects, especially depending on like the role that you’re in within their business. So I actually see it as a cost savings to my client, to having my team work on their projects. And Nicole, I imagine it’s the same for you.

Nicole (21:19):
Yeah, definitely because you know, when my clients choose their own contractors, which most of them do have contractors already on their team when they come in or that we hire them later, but they don’t really involve me in the hiring process to determine who that’s going to be. Because as the project and operations manager, as the person who takes this, the strategy and the high level vision and gets it executed I’m the one who has the most direct contact with the team to make sure that they get things done. And so you ended up having to communicate with everyone on the team. And then that goes under my regular administrative billable hours to that client when I’m doing those things. So they are getting billed either way. It’s just, is it, if it’s rolled up into the cost of the admin or the cost the cost of the admin under my team or the cost on their own team, what they’re paying out of pocket. So the other thing that I want to talk about, like, I know we talked about the agency model and service providers, but we also want to talk about programs. And so if you run a program like how you can go about pricing that,

Yasmine (22:14):
So one philosophy that Nicole and I really believe in is that when you are launching something for the first time beta testing, it is an excellent way to not only figure out what the price sensitivity is of the program. So that’s basically determining what your audience’s willingness to pay is, but it’s really good at getting people in earlier on. So you can get feedback and improve the program. So the next time you launch it, you can launch it at like the true price point or the true value that you think is fair for everything that’s being offered in the program. So a great example of this is if you’re launching like a group coaching program for the first time, or if you’re launching a digital product, you know, for the group coaching program, you might eventually want to price it at seven 47. That’s the goal that you want to get to, but for your first run, pricing it at like four 97, it gives you a little bit of wiggle room to aid, get people in, make sure that you’re getting that necessary feedback.

Yasmine (23:11):
So you can make that program the best program it can be. And when you relaunch it you’ll have testimonials and all this social proof that helps strengthen your case for asking for that you know, additional $250, same with the product. If you’re launching a product that might be, you know, $47, you might want to have the initial launch at 37, get some feedback, make some tweaks, and then bump it up that $10. We always believe in planning your pricing to not only incorporate just the initial beta testing so you can raise it. But also if you’re, you know, a little bit more advanced with your quote unquote passive products and I use quotations because they’re never truly passive. You would want to build in things like funnel pricing and sale pricing discounts, similar to what Disney does and their pricing by having these promotions. So during certain times of the year where you know that you can benefit from increased volume, you have the wiggle room to decrease the price without necessarily diminishing the actual perceived value of the product or offer.

Nicole (24:17):
Awesome. So I think that we gave you a plenty of things to think about when it comes to pricing, where it comes to like your capacity as a business owner. And just even you thinking about the fact that you are a resource to your business, your time is not infinite. Your experience is not infinite, and you need to be managing your resources, which is you very cautiously and be measuring it for profit. And so one of the things that we want to give to you, our email subscribers, if you don’t know, by now, if you subscribe to the backseat of some profits newsletter, you get to know about our next episode first, and you usually get an extra little bonus. So the bonus for this week is going to be a tracker to help you figure out how much time you’re spending, where you’re spending it and how much of it is profitable time. So that we think get an idea of your true hourly rate and what you should be charging in order to maximize your capacity and your profits.

Yasmine (25:14):
And to determine if it makes sense for you to bring on additional team members, to maximize the revenue that you can bring into your business.

Nicole (25:21):
Hope you’ve enjoyed this episode of Pixie Dust & Profits profits. And we would love if you would leave a review because reviews are everything. They give us all the drive to move forward. And if you have any topics that you would love to hear about in the future, send us a DM on Instagram. We’re @pixiedustandprofits. So we’ll see you

Speaker 4 (25:37):
Real soon.

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