For over a dozen years,
NSPG has been providing the tools that allow contractors to
increase profits and minimize business hassles. With our
simple-to-use-tools, you can make being a business owner
what you always wanted to it be -
successful, profitable and rewarding.
Why Shouldn't You Charge
Enough to Earn a Profit?
I have been working with service business owners for
over 17 years. Running numbers, developing
profitable selling prices and implementing Flat Rate
pricing. Over this period, one of the most
important things I have learned is that it takes the business owner, service manager,
and technician, more energy and anguish to get
comfortable with the selling price than it takes for
their clients.
 Let’s look at it logically. You build a realistic
forward-looking budget based on your expenses and
realistic billable hours. You review the
budget, tweak the budget, and then print your Price
Books using your real numbers. Simple.
Yeah Right!
If you train your techs on delivering value and
presenting multiple options to your clients,
most clients will have you perform the work and be very
happy. A few will decide not to have the work
performed. You satisfy your client base, retain and
develop quality employees, and earn a decent profit. Along the way, you build a healthy, successful business.
This is how it works in a perfect world.
Before you can really implement your new prices in
the real world, you must
address the emotional factor of your new pricing. It's
real, and you must understand how to overcome your fear.
Ok, the numbers are the numbers, but
here's what goes on inside your
head when you decide to make the change. If I put
those prices in my Price Guide, I will lose all my
clients. I will be labeled a rip-off, a thief. I
will get a bad reputation and lose everything.
Get Real! Here’s what I've learned from my
experience working with so many different businesses
over the years.
You will not lose all your customers. You won’t
lose anywhere near 25% of you customers due to your new pricing.
You will lose more clients to bad attitudes from your
customer service rep who answers the phone improperly.
Or to a technician who is
dressed like a bum and is not clean shaven. In fact,
you will lose more clients due to a tech who smells bad
than for being too high priced based on
your real numbers.
Here's a table I use in my Numbers Cruncher seminar that
illustrates a worst case client loss
scenario.
Effect of
Price Change from $75/Hr to $243.20/Hr
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|
$75/Hr |
|
$243.20/Hr |
|
Productive Hours |
3000 |
|
2250 |
1500 |
750 |
|
Productive Hour Loss % |
|
|
25% |
50% |
75% |
|
"Labor" Sales |
$225,000 |
|
$547,200 |
$364,800 |
$182,400 |
|
Material Sales |
$75,000 |
|
$56,250 |
$37,500 |
$18,750 |
|
Gross Sales |
$300,000 |
|
$603,450 |
$402,300 |
$201,150 |
|
|
|
|
|
|
|
|
Profit % |
5% |
|
25% |
25% |
25% |
|
Profit |
$15,000 |
|
$150,863 |
$100,575 |
$50,288 |
That is reality. If you're not charging enough to
make a decent profit, what good is being busy all the
time? Charge enough to make a reasonable profit
based on your actual costs. If you have to work a
little less while making more, so be it.
But, emotionally it's still hard to make the change to higher,
profitable pricing. So, how can you get past the
initial pricing shock?
You need to do whatever its takes. You need to
grow personally and connect the new pricing to the new
opportunity you're providing your employees. You need to understand and
communicate the added value and benefits this new
pricing is going to allow to offer your clients. You
need to get past the fear that’s in your head.
For example, a few weeks ago I got a real
shock when reviewing a client's Numbers Cruncher Budget.
As I going through the categories I noticed the owner’s
salary of $300,000. What really stood out was the
fact that this was for a 4 service truck operation.
During the review, I asked the owner about the $300,000
salary, and his answer was very refreshing. He told me
the he had been accustomed to living on $400,000 so
$300,000 was a pay cut for his first year. Now, this owner
was not from the trades, so he had no fear of charging
what he needed to earn his salary. To him, it simply was not
negotiable.
What I find very frustrating is a
business owner operator with a
trade background who has a problem with earning a
reasonable salary for fear of losing his most price
sensitive clients. On the other hand, I see a guy
with no trade experience implementing his Price Guides
one week after running Numbers Cruncher, and his techs
are closing over 80% of their calls.
 Here's
an example from my own life that shows how we all need
to overcome our fears to achieve our goals. I
got involved in KiteBoarding about a year ago, and have been working on
my skills every chance I get. I kite mostly in the
bay where there is flat water and I only have to deal
with two variables - Wind and
Water.
But, my real goal is to kite in the ocean and
surf the waves. This is quite a bit different from the
bay because I'll have a third variable to deal with - big waves crashing
into me. My fear of failure in the ocean held me back
from my goal. My fear of injury or even death held
me back from fully committing to a move from the bay to
the ocean.
A
few weeks ago I was planning on getting out in the bay
when I ran into a kite instructor friend. He told
me he was going to kite in the ocean and invited me to
join him. He assured me he would assist me
if I got into trouble. So here I go, I take a few steps
into the ocean and the waves are breaking on me and
knocking me back onto the beach. Every time I try a get
out I get knocked back. One reason is that I was not fully
committed to getting past the breaking waves. At some
point I gathered the strength to fully dive the kite, and
pull myself out past the breaking waves.
 The only way get
out past the breaking waves was to fully commit and go
full steam ahead. Well when I finally got past the rough
breaking waves, the water was calm and serene. Two dolphins
joined me as I kite surfed down the coast. This time
I was on top of the breaking waves, not getting crushed
by them.
So my message to you is: fully commit to your pricing.
You know it's right. Take a few breaking waves, and get
past them to business serenity. If you need a
little help in reaching your business goals, give me a
call. We all need a bit of help from time to time.
Success is waiting.
Measure Monthly, Adjust Quarterly
& Achieve Annual Profit Goals
On-Line
Resources
Electrifying
Careers
10 Low Cost Ways to Market Your Business
HVAC Web Connection
Financial Advice for thee Self Employed
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In This Issue |
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Phone 800 841-8542
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Freebie of
the Month
The freebie of the month is a web site or
product that we feel gives you some-thing worth looking
at or using that costs you nothing.
This Old House
Home Inspection Nightmares
Sometimes you think that
you've seen it all. Well, here are a few photos
that may surprise you, or perhaps confirm your own
experiences.
If you have
a favorite Free site, let us know.
nspginfo@nspgweb.com
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Numbers Cruncher
Productive Hours
The latest version of Numbers Cruncher has a
Quick Productive Hours (Billable Hours) calculator built
into the Employees form. Productive Hours are a
critical piece of information you need to accurately set
your own profitable prices.
You can open the quick
Productivity estimator by clicking on the Productive
Hours tab on the Employee form.
To get a quick estimate
of an employee's Productive Hours just enter in
the dates and actual hours sold for a few days.
Numbers Cruncher will instantly show the average weekly
Productive Hours for the selected employee.
Productive Hours is one
of those concepts that is difficult for many businesses.
If you base your prices on inaccurate Productive Hours,
your prices will be wrong and you could be losing money
on every job.
Productive Hours are the
time for which your company is actually paid by a
client. Other uses of your time like shop time and
trips to the supply house are not considered part of
your Productive Hours unless you're directly charging
your clients for that time. If you include these
hours that you are paying a field employee but you are
not charging a client for in your price calculations,
your profitable selling price will be too low.
Just because you pay an
employee for 40 hours a week, does not mean that he is
productive for 40 hours. If your field employees
are only 50% productive, which is not unusual in a
service business, your hourly prices could be half of
what they should be.
Give the Productive Hours
estimator a try, and remember that you must be sure that the
numbers make sense for your business.
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