8 Ways to Use Price (Without Discounting) to Get More Customers
May 3, 2010
By Matt Michel
1. Charge a Guaranteed Price
A guaranteed price is a flat rate price. This is the same as a “not to exceed” estimate. Numerous research studies show that consumers hate open invoices. Consumers do not have the expertise to judge whether a repair should take 30 minutes or three hours. This is why consumers try to pin field service personnel down to a hard number. They pester technicians to say how long a repair will take or how much it will end up costing. If the tech offers a number, that amount becomes “fixed” in the consumer’s mind. Whether intended or not, the tech just offered a flat rate price.
Why not do what more than 90% of consumers want and offer flat rate pricing. Guarantee your prices.
2. Flex Your Prices
You offer some parts and products that are relatively easy for homeowners to obtain and you offer some services that are simple and easy for the homeowner to tackle. By contrast, other parts and products are practically impossible for the layperson to obtain and other services are too distasteful, difficult, or impractical for the average homeowner to consider. Lower the margin on the former parts, products, and services, while raising margins on the latter. This is flex pricing. Retailers have done it for years.
The objective of flex pricing is to generate an average margin equal to, or greater than the company’s target margin, which is the margin necessary to cover overhead, generate a return for the investors’ capital, and provide funds for reserves and future growth. Because you’ll capture more business involving parts, products, and services homeowners can source and provide on their own, you should capture more repair business.
3. Never Charge Overtime
If you allocate your overhead against your standard labor hours, how much is left to charge against overtime hours? None. All you need cover with overtime is your direct costs. Everything else falls to the bottom line.
Your field service pay increases for overtime work, but the increase is almost always less than the overtime component of your standard labor. In fact, I’ve never yet met a contractor whose overhead per hour was less the fully burdened top technician or plumber pay per hour. This means contractors could double time for overtime work, charge the customer standard rates, and still drop more to the bottom line.
There is a catch. If you charge standard pricing 24/7, you might pull some business from your standard hours into overtime. As long as your estimate of standard labor hours is accurate, this won’t impact your pricing or bottom line. Since you will capture more after hours calls if you promote “no overtime,” you’ll actually boost sales and the bottom line.
Some contractors avoid overtime work. They charge more to discourage calls that can be delayed. This works for companies with plenty of business that want to avoid burning out field service personnel. Nevertheless, these companies are leaving money on the table. Maybe they should consider adding capacity.
4. Provide Reference Prices
Service Roundtable contractor, Bob Ring, tired of his commercial customers griping about his rates. He asked the Service Roundtable to assemble a pricing reference chart that compares his prices and service delivery with other services, such as copier repairs, lift truck repairs, and so on. Bob’s point was that his prices are in line with other service company prices. He didn’t compare himself with clueless competitors, but successful service companies from different fields.
5. Sell Less For More
Walk into any grocery store and check the prices for packaged goods. Unit prices are higher when packages are smaller. Contractors should prices similarly. Instead of selling refrigerant by the pound, for example, sell it by the ounce and increase the price per ounce.
6. Vary Your Response Charge With Demand
When demand picks up and you’re straining to cover the volume of calls coming in, increase your response charge. Charge more for same day or priority service. Hotels charge more when demand picks up. So do rental cars and airlines. Demand is higher for the Super Bowl than any other football game and the ticket prices escalate accordingly (even so, scalpers prove that the NFL leaves money on the table and could charge even more).
Even the post office charges more for priority service. Why not you?
7. Sell Payments
The entire car leasing industry is built on the premise that people buy based on cash flow rather than total price. This is especially true when the economy falters. It may be challenging to find financing sources, but they’re out there. Independent, local and regional banks have money to lend. Call on them and work out financing arrangements.
8. Sell Breakdown Insurance (But Call It Something Else)
Service Roundtable and Retail Contractor Coalition member Steve Miles added a seasonal breakdown guarantee for a small extra fee. Once the company performs a tune-up, any repairs through the season ending date Steve specified are on the house. Thousands signed up for the program and only a few systems actually needed repairs. The program was a huge success.
Source: Comanche Marketing. Reprinted by permission.
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Copyright © 2010 Matt Michel
PHCC Educational Foundation.
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