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

Rick, Congrats on the apparent success of your business. It sounds like you're doing well. I'm not one for giving away my services and I've thought about your Starbucks analogy many times myself. Tim Hortons can also get away with charging premium prices for their coffee because they offer an exceptional product compared to others (at least in my area). My biggest point was not being afraid to charge what we're worth according to our market area. 10-20% profit is great but 30-40% is better if the local market will bear. Apples and oranges aside, I highly doubt Bill Gates or Warren Buffet limit themselves to a 10 -20% profit with their businesses. Another example is Simplex Fire Alarm company. Around here most electrical contractors have rates at 50% of what Simplex charges. I don't believe that the overhead is much different between a decent size electrical contractor and Simplex. But I'll bet their profit margin is much higher because of supply and demand. (and propietary reasons of course). My main point is really not to sell ourselves short. You can bet physicians, lawyers and accountants don't, and they all have competettion as well and in reality the level of training and education and business risk associated with being an electrical contractor is close if not equal to those examples.(although they're held in much higher esteem by the public).

1. You can only charge what the market will bear.

If you like to go to Starbucks and spend $5 for a cup of coffee, then so be it. If you want to go to WAWA and spend $1 for a cup, same thing. Now, if that is what your target customer is, then you just limited yourself.
Count how many people go into Starbucks and get coffee, and then count how many people buy coffee at WAWA.

Same thing apllies to our trade, if you are marketing the "high end" people who spend $5 for a cup of coffee, then you have a given pool to work from, if you market the conservative people like the ones from WAWA, you have a much bigger pool to work with.

Basically, it depends what your niche is.
The WAWA people look for quality at a fair price, the Starbucks look for quality at any price. The WAWA people are willing to sacrifice a little quality for a better price. The Starbucks are willing to pay a premium for quaility.

The resi end of the trade is tough, you have all kinds of EC out there, from the rip offs to the hackers, to the guy that does a great job at a fair price.

Same thing on the Commercial and Industrial end, however, these guys get weeded out alot faster.

Most customer's want 3 things.
1. Their headache or need to go away.
2. Fair and resonable price.
3. It works.

By knowing what your competition charges, that will help you figure out what you can charge.

If you know your competition charges $4,000 for a 200 amp upgrade, you do the same thing for $3000. A 200a upgrade is a 200a upgrade.
Now use that to your advantage, advertise that you are 25% cheaper than them. Prove it to them. You have the same professionalism, you are just cheaper.

Now use that 4000 X Starbucks theory, and the 3000 X WAWA customer base, and where will you make more money?

Quanity + Quality= Success

Dnk......

[This message has been edited by Dnkldorf (edited 04-24-2005).]

Howdy all!

I wanted to take a few minutes to respond to something LK had to say in regards to a post about Knowing your Numbers.

LK, with all due respect, I don't understand the point of your message. Thanks for trying to help? Perhaps the town you are in remains the same over the years but many of our customers deal with variables that change on a regular basis. What I was trying to get across was that the majority of contractors we deal with are not even close to assessing their true cost of doing business and in turn, how much the need to charge to turn a profit. This is the leading factor on why so many of them disappear or make little or no money at the end of their fiscal year.

No matter what the situation may be, if you are not charging enough to pay the bills, a customer’s opinion is irrelevant. You need to identify your costs and if it ends up that you need to charge a little more than your competition, make sure your customers know why. If you’re overhead and labor are higher that your neighbors, you must be paying for something that the competition is not.

Perhaps it is a good insurance policy to protect your customer in case of an accident or a tech mistake. Maybe it is a continuing education plan to keep your techs on top providing good and timely service. Perhaps it is your quick turn-around due to excellent dispatching tools and personnel or even your professionalism via streamlined Flat Rate Pricing reassuring your customers that your quote is not dependant of what is parked in their driveway. No matter what it is, it is up to you to let your customers know why you are THE SHOP to deal with even if you are not the lowest price in town.

Bottom line, we all have a tendency to low ball our pricing when quoting from the hip. However, most companies do not take into consideration expenses such as unproductive hours stemming from trips to the supply house, windshield or chat time. Callback labor is another commonly missed expense that can easily break the 10K mark per year with just 1 hour per week of callbacks. Disposable tools, part time help, bonuses, etc. are all expenses that must be factored in to your bottom line. Any of which can eliminate the already low profit you are making by trying to fight a price war.

So perhaps my previous post did not help you in particular but I know for a fact that “knowing your numbers” has helped many of our customers target and achieve the profit they set forth. And keep in mind that not all of us live in your town or have your experience in the industry. Judging by the fact you are a moderator leads me to believe that you are better informed than most. I do find however that it is those people that keep an open mind and listen to various perspectives that end up finding better and more interesting ways to run their shop. To be honest, I thought this forum was a place to share ideas, not judge them...

Marc Blanchard

P.S. Rick, you are right, that was me in the other forum! I heard this was another good place to meet experienced professionals in the industry. Thanks for the kind words by the way, your encouragement is much appreciated!

You're preaching to the choir, Service Doc. LK is well aware of his cost of doing business. He's probably a little tired of others not understanding it, or worse, not believing it.

Dave

I am slowly catching on to my actual cost of doing business. I used to give my self away but have snapped out of it. This has been a great thread. The more I read about it the more it is ingrained into my head and the more prepared I am to use the knowledge I have learned from this board.

All,

Great discussion. Here is my two cents and a question

The two cents: A big part of the problem is that the homeowner has no idea what it costs to hire, train and retain quality people with the skills and who you (and the homeowner) can trust to do a safe, quality job. Since they have no idea of the costs, they think they are getting gouged by the price needed to keep in business (and make a fair profit).

The question: does any one know of an “neutral, trust worthy organization” that will give them an idea of what the “going rate” is for quality work? AND why they should beware of cut rate gypsies. If such an organization existed, I think it would help all of us.

Any thoughts?

Marc,

The point of my message was, all the EC's that tried to operate, without knowing their costs are gone.

LK

I suppose that the best explanation I've heard on this issue cam from a guy who painted apartments for a living. He said:

"I really hate these unlicensed bums who come into town, grab some temps or illegals off the street, and scoop up all my business by charging a third of what I charge. They do crap work, stuff gets broke or stolen, three months later they're out of business- and my former customers need me back, but now expect me to match the gypsy's prices!"

I suppose that there are "bottom feeding" customers, as well as contractors!

My neighbor was just teling me, he shopped around for some work he needed on his car, and it appears, each garage he called was higher in price for the same job, now had he called an electrician, i bet the price would have gone the other way.

Hi again everyone!

I must agree with VinceR's statement, most customers do not know a contractor's real costs of doing business and tends to think that they are trying to rip them off through overpricing. How does one overcome this obstacle? By education and perceived value...

As an example, as consultants, we needed a pretty high end telephone system for web seminars and conference calling.. At one point, we needed help making a few adjustments and called the company that sold us the system for some assistance. They sent over a technician who after spending about 20 minutes working on our request gave us a bill for $150.00 and left. I was shocked. Why was this guy charging me what a doctor would for his time?

Then, I actually stopped for a moment and thought. The technician came within 24 hours of my request; therefore they probably had a few on hand. Also, he only took 20 minutes to do his work on a pretty state of the art system, which means he probably has ongoing education. His truck was clean, fairly recent and had nice lettering. He contacted the office with his cell phone to provide another customer with timely service after my call was done. The person I talked to initially was not the owner or the tech, but most likely an office manager or secretary that was getting paid pretty well in view of the quality of the call. All these expenses incurred and a lot more that I fail to mention for my little 20 minute call!

So, I put my unreasonable assumptions aside and gladly paid the bill for a job well done. Unfortunately, most of your customers do not think this way and may not arrive at the same conclusion so easily. So it is up to you to educate them on what it costs to provide the professional services you offer. Now you can't ask them to sit down for a 1/2 hour seminar on your company’s financials. However, you can first make sure that their perceived value is high.

First of all, offer written testimonials from people in their area, "if Bob down the street used them, I am sure they are good!" Make sure your trucks are clean and well maintained and that your techs are also clean, polite and take great care of the customer’s premises. Have your office call before the appointment to confirm that the customer will be ready, which will save you some lost time as well. Take a few minutes to chat with the customer about your company and services, yearly safety inspection agreements and perhaps offer a cursory inspection prior to doing the work. (By the way, all of these costs should form part of your breakeven since they are just as valid as any other marketing effort).

Leave behind a little return survey form and other promotional material so that your customer keeps you in mind and provides you with feedback about your services. Follow-up with a call to make an independent evaluation of the customer’s overall satisfaction. These techniques will not only increased the perceived value of your services but provide you with invaluable information which you can use to better your own company!

Secondly, educate them a little about why your services may cost a little more than the other guys. Odds are, the other shops prices are lower because they are cutting corners around some essential tools you need to provide good service. Perhaps that shop is not properly insured or uses labor that is sub-par. Maybe their turn-around time is slow or their after call service is non-existent. Perhaps they do not offer guaranteed service which makes the customer feel more comfortable about using you in the first place. All this to say, if you are more expensive, find out why. “Spy” on your competition by calling them and getting some information from a customers stand point. This way you will know what you are up against and will be better able to compensate for what the other guy is missing.

You can provide this information verbally or through written materials such as a company pamphlet or even a cost letter. We use an inexpensive piece of software to not only find out what our breakeven is but also break down the costs of any call through an educational letter we send to customers. It actually will show them how much of every expense you incur was dedicated to their specific call. All we do is input the worker hours and materials and the system spits out a letter and a cost breakdown sheet that shows them that $25.12 of their bill went towards office rent, $12.53 went toward your Yellow Page ad, another $15.62 went toward truck insurance, etc. This has worked out great since it helps the customer better understand our true costs and how little off their overall bill is actually profit!

So bottom line, make sure your customer's perceived value of your services is high! Also, insure that they know a little more about how much it costs to provide the peace of mind service that you offer. And finally, give them something more to compare you with than just a price, especially those things that you know the other shops are lacking! It will go a long way to separating you from your competition!

If you have any questions on this, feel free to email me!

Marc Blanchard