Lose Customers to Make $!
October 10, 2003
Service & Repair
By: Charlie Greer
If you’ve got more calls to run than you’ve got personnel to run them, why not consider a price increase?
A common response to that is, “If I raise my prices, I’ll lose half my customers!”
Right. And maybe that would be the best thing for you! Now, how can that be?
Okay, what is your net pre-tax profit? 2%? 5%? 10%? Do you realize that if your net pre-tax profit is 10% and you increased your prices by 10%, and as a result, you lost half of your customers, you might still increase your bottom line profits? How can that be?
Let’s look at an example using simple numbers. Say your total service volume for any given period is $1,000,000, and $100,000, or 10%, of which is the net profit.
Say you increased your prices 10%. That would mean that for the same period, if you had run the same exact calls and done the same exact work, but your prices had been 10% higher, your volume would have been $1,100,000, an increase of $100,000, every dime of which is pre-tax profit.
This would total $200,000 profit on sales of $1.1 million. That’s 18% net profit. Sound impossible? There are companies doing it!
As mentioned earlier, a price increase of 10% may cost you some business. For the sake of our example, let’s say that your 10% price increase actually did chase away half of your customers.
By the way, a price increase of 10% won’t chase away half of your customers and will, in fact, hardly even be noticed. But for the sake of our example, let’s just say that it does. So, for the same period, instead of doing $1,100,000 in total sales volume, you only do $550,000; that’s half.
With a net profit of 18%, you’d still see a net profit if $99,000. That’s about the same net profit you had previously earned at the lower pricing structure, however, you only did half as much work, with half as many employees, and half as large a company to run. Wouldn’t you like to make the same amount of money with fewer employees, fewer headaches and less liability?
Our example demonstrated what a company turning a 10% net profit could do with a 10% price increase. If your net profit is less than 10%, a 10% increase in prices will have an even more significant effect on your net profit.
Let the people who want the work done cheaper go to your competition and drive them crazy and work their techs to death. Then they’ll quit and come to work for you.
Run fewer calls for more profit per call with fewer employees who are more relaxed, working safer, doing a better job on each call and thoroughly satisfying each customer on every call and you, your employees and your customers will all be happier.
You’ll all get more enjoyment out of life and your jobs. Your customers will send you more referrals than you can probably handle and you’ll have a waiting list of qualified help who want to get on your team.
Charlie Greer is a PHC service tech, a PHC salesman and president of HVAC Profit Boosters, Inc., a PHC sales training firm and home of the Sales Survival School. For more information or to sign up for his free newsletter, click here: www.hvacprofitboosters.com or call 1-800-963-HVAC (4822).
PHCC Educational Foundation .
Visit the Facts & Stats Archive for Links to past articles.