ECN Forum Forums General Topics of the Trade Business Related Discussion Pricing to high?

Reno,

I'm curious to know what this is:

I refer to Hustle as pissing and moaning, just dont have any money

"The Hustle" is when the customer, after a price has been agreed upon and the work completed, starts coming up with reasons why the bill should be lower. Another guy charges less, I have to vacuum, I'm on a fixed income, it only took one hour (not two), etc.

Possibly the worst sort of 'hustle' is the 'can I pay part now and the rest later?' Or- my favorite variation- "I'm not authorised to pay, the person who is isn't here now, but I can pay if you reduce your price."

Dealing with "the Hustle" is another topic altogether, one I suggest you discuss in the Wednesday chat room, if you can.
The short version is....be as clear as possible before work starts, be prepared to be ruthless (legally, of course), and refuse any attempt to re-negotiate the deal after the work is done.

Howdy all,

I was reading the posts and getting to know this forum and thought I would put in my two cents on this one in particular:

We get a lot of customers with the same situation. The best advice for charging customers is giving them something more than price to compare. IF all you give is a price, there will ALWAYS be someone out there that can beat you. Perceived value is key. Let them know not only the price but why they should choose you! For example, I am sure the guy that charges $60.00 an hour doesn't have insurance to cover potential mishaps, doesn't answer calls with a live person, doesn't provide timely support because he has no one on payroll, etc., etc., etc.

You MUST give your customer more to go on than price. We are all willing to spend a little more if we get better service and value. So do your customer. Keep in mind however that there will always be customers that will complain about pricing no matter what, let those ones go, they will never be profitable anyway and you are in business to make money. I would rather make $800 with 8 customers at $100 a pop that $800 with 10 customers at $80 a pop.

Also, know your costs. It doesn't matter what Mrs. Smith thinks about your pricing if you are not paying the bills. Find out how much it costs you to run your business and then determine your prices. We see too many contractors quote jobs from the hip and wonder where the money went at the end of the year. Here is a little post we wrote a while back that may help you determine your true costs:


How can companies expect to make money if they do not know their true cost of doing business? Most companies we deal with were not assessing their labor or overhead rates properly. This made them to charge too much or more often, too little.

You would be surprised on the number of companies out there that do not know how to price theirs jobs properly. They make quick estimates from the top of their heads trying to take into consideration some overhead and labor costs. Or perhaps they have a budget and go by their fixed and variable overhead only.

But shouldn’t the true cost of labor be calculated, including your technicians “unproductive hours” such as drive time, running for parts, shop and lunch time? And shouldn’t the income that your technicians generate also be factored in so as not to be way overpriced? What about callback labor, vehicle maintenance, uniforms, etc.? Have you calculated all of the above to find out what you really need to charge? Do you know what your true breakeven point is?

One way of doing this is to calculate you’re fixed and variable overhead and add your cost of labor, including benefits. Divide it by your employee’s productive hours (a benchmark would be 50% of their paid hours if you are a service shop). The resulting number is what you need to charge per productive hour to breakeven.

As an example, let’s say your total fixed and variable overhead as well as your labor costs arrive at $500,000 per year. Don’t forget to factor in any callback labor (work done for free), consumable tools, in fact, every dime you spend operating your business. That accounts for our total yearly expenses.

Then, calculate your total productive hours. For example, you have 3 full time technicians getting paid 40 hours per week. Using our 50% ratio, that would leave them with 20 productive hours each week or 60 in total. Multiply that by 50 weeks (2 weeks vacation) and you arrive at 3000 productive hours per year.

Now take your costs of $500,000 per year and divide it by your 3000 productive hours. You arrive at a charge of $166.66 per productive hour. Now before you have a heart attack, keep in mind that we will use this number to calculate only true job time since driving, chatting with the customer, truck inventory replenishment costs have been accounted for in the unproductive time (20 hours per week or 50% of their paid hours).

Now that you have this number, use it to calculate your true cost of any job. Example:

A 4 hour project would cost for labor and overhead 4 X $166.66 = $664.64

Ten add your materials and/or subcontractor costs, let’s say $500.00

Your true cost for this job is $1,166.64. Knowing this is the first step, since you now know that charging any less would be a loss for the company. To add profit, simply use this formula:

For 10% profit, divide the number by 0.9.
For 20%, divide by 0.8
For 25%, divide by 0.75, and so on.

So to make 20% profit on this job, it would be $1,166.64 divided by 0.80 or $1,458.30

As long as your expenses are correct and you’re productive or job hours are conservative and achievable, this method will not steer you wrong. You will be making 20% profit on that job or $291.66

I hope this little tidbit helps a few of you reevaluate your pricing. If you have any questions on this, do not hesitate to email me.

Marc Blanchard

[This message has been edited by Webmaster (edited 04-20-2005).]

Marc,

Thank you for trying to help, but i don't think it will help change anything, in my town alone, over the past 25 years, there have been over 30 guys get their lic. and try their hand at the EC business, and here we are 25 years later, and we have the same 4 EC's still in business, and they have been operating just as you said, using known overhead and adding a small profit, I have seen them come, and i have seen them go, all good well quilified electricians.

Bob,
while your example of business 101 is amusing, we tend to be a little more consistent with our pricing. Our rates are based on our cost of running our company plus the % of profit we want to make. If we get too busy, we don't gouge our customers, just because we don't need the work. My mission is to give the customer the best value that is possible. All our customers get treated the same and pay the exact same for the tasks we perform. the only exception is that if we are slow we may waive our dispatch fee.

Note:
the last time I read "business is business" on this forum it also was used to try to justify deceit. I hope I am reading this one wrong and that's not the way your business is done.

Hey Marc,
Nice post. Were you posting at another forum where you got alot of grief for no real apparent reason?

Rick, I'm glad I amused you at least. I do not operate my business with deceit in mind. What I was really getting at was with setting your rates, hourly, service calls etc., according to what the local market will bear. If your services are in high demand, you can charge a higher rate and thus make more profit. I'm not saying gouge, just base your rates on what the market allows. I know there are all sorts of books out there that have formulas for everything under the sun but they don't apply to every market area and every industry. If your business is extremely busy charging 50 an hour and another business is busy and charging 100 an hour but your happy with your 10% profit. I understand your point but there is also more than one way to establish rates, such as supply and demand.

Bob I used think the same way. Keep inmind that I am not some fantastic businessman, but an electrician who went into business. When I finally decided that things should be done differently, I had all the same attitudes. I had a friend in a different service industry who said I should be charging more and doing things differently and that he was having great success doing it. I told him it would not work in my industry or area because there was too many guys giving there services away. when I researched it further, I found that I could probaly set my own prices as long as I was providing my customers with a much better value. That was three years ago and we are growing every year. I am also networked with 200 other companies from the sticks in tennessee to the cities like LA and Houston. we have bigger shops and alot of one man shops, all of at one time thought that it would not work in our market.
My challenge to you is go to Starbucks and thell hem there coffee is too much. Or look inot how much Subway and Quiznos are getting for a meal. They are all up against the same thing that we are and they are dominating their markets.

I don't mean to be pushy about this, but it took me some time and persuasion to finally look hard into completely changing the way I think about and do business. I lost about two years, because I was afraid to take the chance.

God Bless

Rick,

Here is a good one, a new guy just came to the area, his rates are twice that of all the other EC's in this area, he just set up down the street, and he is busy as can be.