Service Pricing Part 3
January 28, 2004
By: Matt Michel
This is part of a continuing series of New Year’s Resolutions aimed at helping your company become “fiscally” fit. In this series, we will walk through the marketing mix of product, price, promotion, and placement. This Comanche Marketing tip focuses on service pricing.
Service companies stick it to customers for overtime. I don’t know why.
If you correctly allocate your overhead, you can pay your technicians time and a half for overtime, charge straight time to the customer, and make more money doing it.
Uh, how’s that? Simple. I have yet to see a case where the hourly overhead allocation did not exceed the fully burdened excess pay to a technician receiving time and a half, or even double time. Stated differently, the payroll difference between time and a half and straight time for an hour of labor is less than the overhead allocation for that hour.
If all of the overhead is allocated against the standard work week, what’s left to allocate? Zero. Zip. Notta. So you can pay your employees a premium for overtime and because there’s no overhead to allocate, more money falls to the bottom line than with straight time where you’re covering overhead in your service prices.
Don’t you want to charge a premium for overtime to discourage people from calling you after hours? Well, I never want to discourage people from calling me; never, ever.
Look, it’s as big a pain for your customers to call you for after hours service as it is for you to provide it. When they need it, they need it.
Plus, service stakes are rising every year. All night grocery stores have become common. Most, if not all Wal-Marts and some Home Depots are open 24/7. Retailers are extending their hours in recognition of the fact people are pressed for time. They don’t charge the customer more for shopping during hours that are convenient for the customer and neither should you.
I don’t want to get into the great flat rate versus time & materials debate… again. I will offer this. Flat rate is associated with lower cost, fairer pricing in the minds of most people. Even the post office is promoting flat rate these days.
I spent seven years working for one of the country’s largest marketing research firms. Because of my background, I did a LOT of work for companies in the “building products” industry. In survey after survey, in focus group after focus group, flat rate pricing was preferred over time & materials.
There’s a misperception among many service companies that going flat rate means you must charge usurious rates. Nonsense! You can charge exactly the same amount as you do today. Only the presentation of the prices differs. Time & materials pricing is open-ended and threatening. Flat rate pricing is fixed and reassuring.
Give your customers the reassurance they want. Give your customers the pricing presentation method they prefer.
Proper pricing is always the starting point for a Comanche Marketing initiative. If you price too low, you will never be able to afford to execute other marketing tactics.
In the new year, resolve to…
Review your pricing to ensure you are pricing for profitability.
Examine your discount structure to make sure you are giving your best customers better treatment, that you are not penalizing yourself with your discounts, and that your semantics are good when describing your discounts.
Review your material mark ups to determine the carrying cost of inventory, the true cost of a dollar of inventory, and the correct mark up.
Examine your portfolio of products and services to identify items you might want to flex up and down.
Review your overtime price structure.
Consider changing your pricing presentation to be consistent with customer desires.
Source: Comanche Marketing. Reprinted by permission.
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Copyright © 2003 Matt Michel
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