BUSINESSNEWS
Smart pricing
Competing on price is nearly always a terrible business strategy . This statement may seem strange so Benjamin Dyer of Powered Now explains how smart pricing is a better approach that can make you much more successful in business .
» APART FROM DOING THE JOB well , your pricing is the most important skill in running your installer business . But it ’ s often the most misunderstood .
A lot of new businesses start by competing on price . And the danger is that they never get out of that habit . Yet pretty much every successful installer business primarily competes on value and that isn ’ t a coincidence . And even if you are a sole trader , best pricing can make the difference between a struggle and a very decent living .
Under-charging is one of the most common causes of failure . Of course , this doesn ’ t mean that you can charge whatever you like . An outrageous price will ultimately be just as damaging as a low price . What is important is that price shouldn ’ t ever be the main reason that you are trying to win business . In contrast , smart pricing is the key strategy to make you more financially successful . Hopefully , this article will tell the story .
TO QUOTE OR NOT TO QUOTE
There are two ways that you can charge for your labour . One is to charge by the hour . This comes with the minimum of risk . The downside is that you may win less work and the amount you make will always be constrained because a ) it is limited to the hours you work x hourly rate and b ) the customer will see how much you are making . The customer always thinks this is too much because they won ’ t take into account holidays , sickness , slack periods , training , the cost of tools , material cost and your van .
The upside is that whatever the job takes you get paid a reasonable amount and you don ’ t have to spend time on estimating . The issue is that most customers prefer to know how much they will be charged for the job up front .
For installers that aren ’ t ambitious and have customers that trust them , charging by the hour is the safest way to run their business . They can also survive if they are poor at estimating the effort involved . But unfortunately if you charge by the hour you will never make much money and the remainder of this article isn ’ t relevant to you .
When you produce a fixed price quote it provides the opportunity to make a lot bigger margin . However , it comes with a greater risk . The reasons are that customers rarely understand what the job involves as well as you do , but they much prefer to know the cost before they make a commitment . They simply won ’ t have a feel for how much work is involved and how many hours are required so they will just think about the cost versus the benefit and that ’ s the basis of smart pricing .
Getting them thinking about value rather than cost allows you to make a higher hourly rate . This is because everybody has an opinion on your rate per hour . Their opinion is that you should be making less , but your rate is hidden so their opinion is irrelevant .
THE PRICE ISN ’ T AS IMPORTANT AS THE VALUE
Having established the point that providing fixed price quotes where possible is a good idea , this section is all about arguing that you should not compete on price .
People pay lots of money for various of things . Some people ’ s beer budget is huge , for others it ’ s coffee . The cheapest new car in the UK is the Dacia Sanderos , costing under eight thousand pounds . But the roads are full of BMWs . The Dacia Sanderos is not even in the top ten sellers . It may be hard to believe , but most people don ’ t buy on cost , they buy on value .
When you are working on a luxury or commercial property you know that only the highest standards will be acceptable . You know that the customer will insist that any slightly substandard work is corrected . Therefore , you need to price accordingly so that you can afford to meet the customer ’ s expectations . The good news is that the customer will expect to pay a lot because they give more importance to the value that they will gain .
You can compete on price by being very mean with what you pay yourself and your staff . You could also cut corners on the job .
92 » APR 2021 » CLEARVIEW-UK . COM