Wednesday night, due to weather-related travel delays, I found myself idly flipping through the channels at a hotel in downtown Miami. (It was the Viceroy, on Brickell Avenue, which was a nice property, but with such a heavy Miami Vice vibe that I was surprised they didn’t stock cocaine in the minibar.) I came across something on CNBC and realized just a few minutes into the program that I would be writing about it here.
The show was called Restaurant Startup, and it’s a cross between Shark Tank and Top Chef. (Seriously… I can see the producer walking into a meeting with CNBC and pitching it as exactly that.)
Two teams of restaurant owners approach the “sharks” with their concepts – in Wednesday’s episode, they were a married couple who ran a Lebanese-themed deli in Oklahoma City who wanted to expand into a sit-down restaurant, and a pair of good ol’ boys with a southern comfort-food joint in Kingsport, Tennessee who wanted to open a second location in Knoxville. The sharks sample some dishes and quiz the competitors on their operations. Then they pick one and give them 36 hours and $7,500 to show off their food and their skills. After that “opening night,” they decide whether to invest their own money in the concept.
Early in the show, the good old boys served the sharks some dishes prepared from the owner’s grandma’s recipe book. And the shrimp and grits did look mighty tasty. One shark asked the chef how much the owner currently charges for it in Kingsport, and learned it was $12. Then he asked how much the average check was, and learned it was just $13.
“This is a $20 dish in Knoxville,” he said, pointing down at the grits. “You need a $35 average check to make it work there.”
The chef did not want to hear he had to raise prices, and much wailing and gnashing of teeth ensued. He objected that diners in his town wouldn’t pay that much for the food. His grandmother who came up with the recipe wouldn’t want him charging that much for the food. And he wanted everybody to be able to afford to eat at his restaurant and enjoy his grandmother’s great dishes.
(Does any of this sound familiar? I can just hear members saying “My clients won’t pay that much!”)
The sharks agreed that it would be a big jump to raise prices to those levels. But they insisted that the point of running a restaurant isn’t just to share grandma’s southern comfort. It’s to make money – and making money in this case would require higher prices.
The sharks chose the good ol’ boys for the test kitchen, and set them up with a local consultant to help walk them through the process. Once again, pricing came up. The owner said flat out “I don’t want to serve a $19 piece of fish.” The consultant explained that a restaurant isn’t just serving a piece of fish, it’s serving an experience – then proceeded to show the owner how he could garnish and plate the fish to look like it’s worth the price he had to ask diners to pay.
At that point, we could almost see the light bulb go on over his head. He readily agreed to raise his prices, and the pop-up restaurant opened for business.
Diners who filed in that night loved the food. Unfortunately for our good ol’ boys, service and management weren’t as good as they should have been, and the sharks declined to fund the concept. It was a hard lesson for them to take home to Tennessee.
And here’s our lesson for the day. If you’re like most TaxCoach members, you’re running your business to make money. (I haven’t met a member yet who told me their practice was a 501(c)(3) nonprofit.) That means you’ve got to lucror vestri dignitas – or charge what you’re worth!
You may think your clients won’t pay more – but you’re probably wrong. You may think that your mentor, or the person you bought your practice from (who didn’t charge enough himself) would disapprove – but it’s your practice now, not theirs. And you may really want everyone in town to be able to enjoy your great service – but can you really make the kind of money you deserve if you price yourself so that anyone off the street can work with you? Probably not.
Here’s a member success story that illustrates this exact point.
Earlier this year, a longtime member from outside San Francisco came to me with a question. She had bought a practice in suburban Dallas and discovered that the previous owner was woefully undercharging his clients. How much could she “get away” with raising fees? I told her to start with a full 25% and never look back.
A week ago, she told me that she was back in San Francisco seeing old clients, and “yes my fee increase is taking care of this trip.” I can’t say I was the least bit surprised to hear that. She’s one of hundreds of TaxCoach members who have boosted fees by a significant percentage in a year and found that it works just fine, without any of the mass client exodus and rioting that they feared. So if you’re in that same boat, don’t be afraid to do the same yourself. Your clients will pay more – you just have to give them a reason!