For those struggling with setting their prices, here are some thoughts. http://journals.iranscience.net:800/www.pmmag.com/www.pmmag.com/CDA/ArticleInformation/features/BNP__Features__Item/0,2379,3743,00.html
First the thanks. I enjoyed the article and agree with its basic points – you should take the risk & headaches of running a business only if you are rewarded with higher pay than working for someone else; to do this, you have to charge enough to cover ALL costs – depreciation, office help, taxes, etc., etc, etc.; if you want to make money in service work, you need to build a reputation for quality, not low prices.
Here is the question #1: Something does NOT compute in the article. Is the going rate really $35 per hr for service work and a ONE-MAN-SHOP has to charge $83.99 to make the trip worthwhile? What is going on here? I think part of the answer is that overhead & profit costs per job decrease with number of crews. For example, if Ron hires a crew or two, PART of his overhead and his profit target don’t increase but the number of jobs increase. This means he can charge less per hour and still put the kids through college. However, I find it impossible to believe that even with 10 crews, he can get them even close to $35 per hour. Perhaps someone can enlighten me. Is the $35 per hr just plain wrong?
Here is Question #2: What is the approach used by the “Flat Rate Book” folks to arrive at their prices? I am NOT looking for specific prices here only an understanding of the concepts and logic they use to develop them.
Re: Thoughts about pricing#157894 02/09/0612:01 PM02/09/0612:01 PM
I also found this good to read. I must say I thought I remember reading this a few years ago. Someting to keep in mind is it does not have dates so it could have been a long time ago. But the point is still good.
Re: Thoughts about pricing#157896 02/09/0608:22 PM02/09/0608:22 PM
LK, not all overhead. for example, you have 2 people in the office, rent, phones, office equipment, computers, etc and are running 4 men. if you add 2 men, none of that will change. so the cost per man to cover these items will decrease.
you will increase, in some cases, other OH items like trucks, fuel, benefits, etc. But these should be directly covered by the new hires.
Re: Thoughts about pricing#157897 02/10/0610:45 AM02/10/0610:45 AM
Thanks, for the book suggestion, I just ordered a copy.
I take it from mahliere's comments there are no MAJOR advantages to being big from an operations point of view. This brings back to my question re the "going rate of $35 per hour" If this it really is $35, most of the folks competing with Ron should be going out of business soon AND those in business for more than a year or 2 are 3 times more expensive than the start ups. Next time I need a plumber, I will ask him how much experience he has a plumber and how long he has been in business. I will hire the guy who knows his trade, but does not yet know how much he has to charge to stay in business. VinceR
Re: Thoughts about pricing#157898 02/13/0608:20 AM02/13/0608:20 AM
The article first ran in 1989. It was re-published in June of 2000, and this is what is currently listed at the top of the article:
"The following feature story ran in the June 1989 issue of Plumbing & Mechanical. While the prices have changed since the late 1980s, this article remains as useful now as it was then."
Note that the publisher freely acknowledges that rates have changed since that time. The $35.00/hr rate ONLY applied to the going rates in the Tulsa, Oklahoma area for 1989. Even back then I'm sure the rates varied from one part of the country to another, but they definitely have changed in the past 17 years.
Re: Thoughts about pricing#157900 02/14/0607:32 AM02/14/0607:32 AM