Hope this doesn't create a bashing contest!
Hope this doesn't create a bashing contest!
It has been over a month since the last post on this subject. Either (1) emahle made a point about developing a proper pricing strategy and knowing one's own break even cost or (2) it isn't worth arguing over the issue and let's get back to working harder to loose more money.
I have been a contractor for 14 years and have finially realized that I need to do something different. I have grown through the commercial new work contracting part of my business, but profits have fallen short in our residential service/repair division. My T&M pricing hasn't worked very well with many of the same areas of complaints listed in this post. Customers complain about the time to "go" get materials, do paperwork, or other tasks that are really part of the job. They become clock watchers and try to have us knock off time for incidentals "they" feel are not part of the repair task.
I'm convinced that there are "NO" perfect solutions to the pricing strategy, but the flat rate system is more convincing to offer our customers for services performed. Why? 1.) No more clock watchers 2.) price agreed before the job begins 3.) allows the tech to focus on the repair and not the confrontation after repairs are completed 4.) opportunity to sell our customers on the "service" we offer as well as the skill 5.) company O.H. costs can be spread out among all customers in increments that are managable and accepted 6.) Creates good customer relations 7.) knowing true break even costs for "your" business structure
One point I'd like to share that I believe is important regarding either pricing format. No matter how you quote the job, there will ALWAYS be those who feel your price is too high and you will NOT be able to sell your service to them. Some customers shop based on price alone and some shop based on the desire for good service, skill, and reliablity after the sale.
Here's another analogy. Say there is a new car lot with (2) cars to be sold. (hard to imagine, but stay with me) One is priced at $15K and the other at $30K. There are those that will be attracted to the lower priced car because it will fit their budget, but one will need to sacrifice some luxuries to afford this car. Reliability might not be built into the lower priced car as well. The $30K car will inherently attract those that look for some of the luxury items that typically is included in a car at that price range. Warranty may be extended and the car may have a better reliability track record.
There will "ALWAYS" be those who will buy the lower price car because they don't need the high end luxuries or the price tag that goes with it. Conversely, there are those that will be attracted to the higher end priced car because they will expect those comfort levels and feel the price is worth the extras you receive. You get the picture.
Same holds true with our service industry. But, there is a difference. The electrician offering the low price, to meet those customers pricing needs, will more likely be replaced with another similar contractor who charges too little. Why? Because the first guy had gone out of business due to poor money management and low profits to maintain or grow the company. The cycle repeats itself time & time again. You think we'd learn from others mistakes! Look at it this way. Why would you establish your pricing levels based on what your friendly competition down the street charges? What if they charge too little, and in the attempt to be competitive, your pricing falls below your break even limits. It will not take too long before your business will fail.
Sorry for rambling, but I'm one who has learned from others and my mistakes and decided to do something about it. The flat rate system is by means a "silver bullet" but I do believe, if implemented properly with good training for your techs, our company will be one of those that will be around to service those maintenance agreements and customers for years to come.
