Andy Miller: Foreign.
Nathan Bush: Levers you have for opening up your profit is raising your prices. But it's also the lever that we seem to have the biggest internal battle with. There's something deep inside of us that makes putting prices up one of the most nerve wracking moves that you can make in E Commerce. But the reality is that every E commerce business is carrying costs today that it wasn't carrying two years ago. And those costs are going up all the time if you are not passing them on. Your margin is reducing every day, your profit is reducing every day. So when that decision comes around, there are typically three ways that you can go. You can wear it and give up the margin. Not ideal. You spread it across your product prices and hope that nobody notices. Or you can put in front of the customer and tell them what's going on. Most of the difficulty in this decision is not necessarily in the money. Across the show's archive, the pattern is pretty consistent. The cost itself is rarely what upsets people. It's being surprised by it. So today we are going to explore how to raise your prices without losing customers and how to make it a regular part of running your business rather than a decision that you dread once a year. Beck Williams is the CEO at Seed and Sprout, the Byron Bay sustainable lifestyle brand that has gone from a warehouse full of unsold bread boxes to $30 million in revenue. And in about four years when the Australia Post fuel surcharge dropped, she already had some scenarios written. Let's hear it from Bec.
Anna Ross: The big part of my job is around getting the settings right, making sure that we're efficient as possible and de risking. It's not particularly sexy but it's so important when you've got a fast growing business to de risk and kind of be that contrarian of yeah, things might look really rosy but what if this happened? Let's build a scenario around that, what that might look like so we prepare for it. The team are probably completely sick of me talking about scenario planning, but it, it works. It helps us out of jail every now and again.
Nathan Bush: I noticed that you with the fuel surcharges that came in place and I've used this example actually a few times since seeing it that on your product pages where you have the postage. You've also been very upfront, very early on the journey saying that there will be a $2 temporary fuel surcharge on the product page. To me that was interesting because you could have easily not said anything or hidden it until people get to checkout what was the reasoning behind that. Do you think it's actually cost you any customers?
Anna Ross: Yes. Very good one to pick up on. So this probably tells you a little bit how we do business in at Seed and sprout internally. So we knew that that fuel charge was coming. We predicted it. Everybody knew that as soon as Auspost hasn't increased, they will pass it on about 2.3 seconds later. So we were ready for that and we had it as part of our snop deck. It was already flagged as this is likely to happen. We just don't know when we'll drop it dropped the day before the meeting. So we already had some scenario plans already built out. First one is a do nothing scenario. We very quickly crossed that off the board. We couldn't absorb that as a business. And also the uncertainty of how long that would have to be absorbed for. No thanks. It wasn't a palatable risk for anybody. So we crossed scenario A off. B was to be super transparent and to have it stepped out either way. And we agreed that that was the right thing to do. That's the way that we are authentic with our customers. And we also went the next mile and actually had Sophie go out on our social channels and talk about we've gone through this decision and why we've done it. We hope you support us. As soon as it's. As soon as it's abolished, it will be taken off. It's a temporary charge. We're in this together. We want to be continue to keep serving you the way that we do. Then we came down to the nuts and bolts of how are we going to execute this. There could have been multiple ways. We could have spread that cost across all of the products and kind of amortized it out that way. We didn't think that that was fair or equitable because some products are heavier than others. We also knew that when we had to wind it back, that wasn't fair on the rest of the team to be able to remove all of that and wouldn't be transparent. There was lots of different permutations that we had, but we settled on being as upfront as possible. To your first question around, did it cost us customers? I. From the data, I would say no. I think. I think us going out and benchmarking what some of our competitors or other brands have done, I think the way that we sequence the messaging and the fact that we were so upfront about it, there were certainly some customers that came through and said, I'm not sure if I want to pay that Surcharge to which customer Care said, I'm sorry, it's not, it's some. It's not a. You get to choose to do it or not. Unfortunately, we, we have to pay it and so it's part of the journey. But you can hold off. You can purchase with us when, when the, the levy comes off. I don't think it cost us customers. I think if anything, it built that community and that trust that we were always going to be upfront about it and we always are. If something doesn't work or it hasn't worked, we're very honest about it. We were saying with the US when we had to stop shipping, we also went out and did a broad media piece where Sophie said, we really would love to ship to America. But right now we just, we. We actually can't do it as a small business. The providers are not there. It's too difficult. But as soon as we can, we'll be back. So I think we turned what could have been a really horrible event into another display of how do we connect further with our community, how do we be authentic? And hopefully we can remove that as soon as possible. It's sort of starting to get some indications that maybe that can be removed and we can start winding it back. But that's about being candid as a small business. Right.
Nathan Bush: And I think. Do you feel like there's a bit of a sympathy or empathy for small business at the moment in Australia? Because things like the surcharge was. I don't feel it was just an E commerce issue. It was publicly well known, so that probably helps with people being accepting of it. Do you think? Obviously with the recent budget and you know, there's a lot of probably. I don't think I've seen so much empathy for small business owners in Australia right now. Has that translated into sales or anything commercial for you?
Anna Ross: I think definitely from a sentiment perspective, I mean, we may very well be seeing it in the sales, but it would be very hard to really pinpoint whether that was an empathy piece or not. But we definitely get it in the comments. Through our socials, we also get proactive outreach to customer care, saying thank you for being so honest and we're here to support you and we love what you're doing. And if it costs $2 more for my order, then I mean, I'm in it with you. Like, we're kind of all in this together at the moment. And I think the overwhelming feedback from customers is. And particularly the community. You don't have to be A customer to be in our community, but they want us to be successful because we have this platform where we're trying to do good, we're trying to do good for the environment, for people's health. Yeah, we're trying to run business in a slightly different way. So I think we always have that. We always have our customers really rooting for us, I suppose, in terms of us wanting to be successful because the net, it's net positive for kind of everybody. So, yeah, it's really nice and very heartfelt to get some of those messages through into customer care and in reviews and particularly on social as well. It's like, we understand, like, thanks for being honest. You could have hidden it, but what's to be won by that?
Nathan Bush: The planning there covered not only whether seed and sprout would pass the cost on, but how they would communicate it and where they would show the cost. That's what made the price increase digestible for customers and workable for the business. So let's go back into the archive because the price rise question has landed on pretty much every Australian brand or retailer in the last couple of years. So there are three lessons that I want to share with you around how to increase your pricing. Number one, map your true cost to the cost to fulfill your product. So where do you start? Before you decide what price to put in front of a consumer, have a think about where your costs actually sit. Because a price rise usually gets argued from one input, whether that be an increase to shipping, an Australia Post fuel charge. But the pressure is usually coming from a multitude of costs that are driving the price up for that particular product. So you need to map out these costs on a per order basis. Your cost of goods, which is almost certainly moved, your shipping and fulfillment, your packaging, the cut that everyone else takes on the way through. So your payment fees, your app fees, your marketplace commissions, your technology and every one of those subscriptions has probably crept up recently. Your employment and your warehousing, they've definitely increased. You need to spread these costs across the orders that you actually ship. Add all of these together and you've starting to get a picture of your true cost to deliver an order. And that is the number that tells you whether you need to move price at all. Then take one of those lines on its own because it shows how easily the gap can hide. For example, shipping, the carrier charges you say, $9.50 for a Metro parcel. Add packaging at $1.20, add pick and pack labor at, say $2. You're all of a sudden at $12.70 per order. If you're charging a flat $9.95, you're already $2.75 down on every order. And you were down before any surcharges or any extra costs turned up. If you were to look at it purely from a shipping perspective, that is the sort of thing that you would find. Anna Ross was the founder of Kester Black and she found hers the simple way by looking at what everyone else was charging.
Anna Ross: We were offering $5 shipping and everybody else was offering eight. Nobody offers $5 shipping. So it's like, why are we cutting our margins so much on that when we don't need to, when it's not the norm in Australia? So, and we were, we were like paying for freight at that rate because it would cost us seven or eight dollars for each parcel.
Nathan Bush: So don't assume that you just have to absorb all of your costs. The full per order number is the baseline of what you could reasonably pass on and the decision from here is what contribution margin you're aiming for and then pricing back to meet that. So that brings us to lesson two. Decide whether the decision that you're making around price increases is permanent. Before deciding how you show it, it's really important to understand how long the cost is going to be there. But because that helps determine the mechanism that you take it to market, if you believe that it is a long term change, bake it into the price of the product or into the price of the service, like shipping. That is the clean way and it is the one that survives. If it's a genuine one off, you can do what Beck did and call it out as a one off. And if it has come from a partner or a vendor that consumers already know about, you can name them. Beck named Australia Post and everyone in the country went, we understand. Have a think about which of those you are actually dealing with. Because most cost rises are not temporary. Most of them will need your product prices to move over time. And dressing a permanent cost up as a temporary surcharge is probably a promise that you're going to have to break. Aaron Cowper is the founder and the CEO of Shop Grok and he watches Australian retail pricing for a living, including what happens when brands get too clever with it.
Andy Miller: We've seen retailers who have tried to use shipping as a way to, you know, increase their margin by, by moving shipping around and we've seen actually a few retailers being pinged by the ACCC for doing that because it's so. I would certainly not recommend that but there are have been retailers that we've seen do that, you know, where they're trying to move shipping around day by day. You know, obviously it's not reflecting the actual shipping costs, but you're right, like if you, you never want to see, you know, shipping charge in the checkouts.
Nathan Bush: So there's a commercial reason to put price increases into the product price and there's also a regulatory one. A change that moves around and does not reflect a real cost is a problem well beyond your conversion rate. And that brings us to lesson three. Price is something that you run, not an event that you survive. It's part of what we do every day and we shouldn't be avoiding it. Raising prices is not a once and done thing. It needs to be baked into how you run the business. The same way you review your range or your ad spend. There are two ways that leaders do this and both work. Some tell customers ahead of time that their prices are going up, which turns it into an almost promotional moment and gives people a window to buy before the price increase. Others move prices regularly enough that it's simply part of how the business runs and nobody blinks. What matters is that you've picked one deliberately rather than leaving price untouched until a cost shock forces your hand and you have to do it all at once. Andy Miller is the co founder and the CEO of Heaps Normal and he is making this call over and over in a category where the cost pressure has become relentless.
Andy Miller: We are really conscious of pricing our product competitively, understanding it's still at the premium end of the market. But a lot of that's driven by the same things that are affecting a lot of businesses, which is the increasing cost of ingredients over the last couple of years and just generally increasing overheads, which we've made the decision not to pass on on a few occasions. But it does create a lot of challenges and especially for us when the overarching goal is to create an accessible product, both from a flavor point of view, but also from a price point of view.
Nathan Bush: If you notice there he is not avoiding the pricing decision. He's making it again and again and again with his eyes wide open. And he can tell you exactly what it is costing him each time he chooses not to pass something on. That's essentially what running a business is. We need to adjust pricing all the time, not as a one off. So the real internal battle over raising prices is real and it doesn't go away. You are asking people to pay more for the same thing and no amount of good communication changes that. What you can do is you can control the process, map what an order actually costs. You decide whether the increase is permanent before you pick the mechanism and review pricing regularly instead of reacting to it when things get really tight. We cover pricing and margin in module 5 of the E Commerce foundation course, which we are just about to release, and it brings together lessons from over 600 interviews that I've done with Australia's best E Commerce leaders. Keep an eye out for the E Commerce Foundation's course from Add to Cart which will be dropping very, very soon. And if you are working through your own version of this right now, whether that be a freight surcharge, a tariff, a supplier increase that you can't wear any longer, that is the kind of thing that we love discussing in the Add to Cart community. Come on over and join us for free. You can ask all the questions you want. Get as nerdy as you want in that Add to Cart community. Head on over to add to cart.comau and ask your questions in there. With over 800 people in there now, that's it for the playbook this week. Go away and have a look at your pricing. Get that internal fear out of your head and go see are you actually charging enough or can you increase your margin in the right way? When your brand is riding a wave that just keeps growing, you need more than just the right platform. You need the right partner. Gander Clothing was scaling rapidly, but their E Commerce tech just quickly couldn't keep up. That's when they partnered with Convert Digital. Since launching a headless Shopify plus site in 2021, they've seen incredible results. A 300% increase in daily orders, 16% revenue growth and a 12% conversion boost. With faster load times, seamless checkout experience and powerful omnichannel integration, Gander has transformed into one of Australia's biggest, biggest retail success stories. And it's all powered by Convert Digital's commerce expertise. It's commerce that stacks up. Read the full case study@convertdigital.com.
