Competing on price is one of the easiest ways to make you poorer. That statement may seem strange so this articles will explain how 5 tips on smart pricing can combat this problem.
Pricing is the most critical aspect of running your installer business, yet it’s often the worst understood. Competing on price tends to be the first strategy that people new to business adopt. As a result, under-charging is one of the most common causes of failure. This doesn’t mean that you can charge what you like. It simply means that price shouldn’t be the main reason that you win business. Better than that, smart pricing can be a key strategy to make you more successful. Hopefully, these tips can help.
Quote for all business
There are different ways that you can run your business. The first is simply charging by the hour. This means there is no risk to you. However long the job takes you get paid a reasonable amount. The problem is that customers don’t like it as they don’t know how much they will pay.
If you aren’t particularly ambitious and your existing customers already trust you, this is a safe way to run your business. It’s also the only way to survive if you are very bad at estimating. However charging by the hour means that you will never get rich and the rest of this article may not be of much use to you.
Quoting up front gives you the opportunity to make a much greater margin albeit with greater risk. This is because customers will rarely know what the job will involve as well as you do. They won’t have a feel for how long things will take so they will focus on the cost compared to the benefit. This switches them to thinking about value rather than cost. That’s in comparison with a rate per hour which everyone understands and about which everyone has an opinion.
Compete on value not price
It’s sometimes hard to believe, but most people don’t buy on cost, they buy on value. That’s why the roads are full of BMWs. The cheapest new car in the UK is the Dacia Sandero, which costs around six thousand pounds. But it’s not the only car you see on the road. It’s not even in the top ten.
Of course, it’s possible to compete on price by paying yourself (and any staff you have) a low salary. In addition you can cut corners on the job. The first approach means immediate poverty. The second makes you poor later. You will also never get recommendations by word of mouth so you will be competing on price for ever. After drowning in a sea of unpaid bills and investigations from trading standards most people understand the problems with this approach.
The alternative, competing on value, is about explaining and demonstrating that you will do a quality job. Mark Goodchild of Electric-call.net explains it as follows: “The aim is always to do a quality job and be highly responsive to the customer. In the last 12 months we haven’t received a single complaint. However, don’t try to compete on price as you can’t do that at the same time as providing a great service”. Matthew Stevenson of The Landscape Company agrees: “I always tell customers that we won’t be the cheapest, but we will be the best value”.
People will pay more if they feel that they will get a quality job. And remember, every interaction that they have with your company will add or subtract from their view of whether that’s what you will deliver. It’s why uniforms, smart vans, tidy appearance, being totally professional with prospects and producing great looking quotes can all help to establish that feeling. Qualifications, membership of trade associations, customer testimonials plus before and after pictures of previous work can all help too. The Landscape Company’s site at thelandscapecompany.org.uk is a good example of how to do this right.
Another approach is to provide a service level that nobody else provides. One installer I know responds to emergency call outs within one hour, 24x7 and however small the job is. This is their way of generating new work as customers immediately start trusting them. Delivering service like this builds confidence. Often an installation with a problem needing a callout is an installation that needs a lot more work.
In fact, some companies are so against competing on price that they won’t even quote if they are in competition with anyone else. You do need a steady stream of leads to be able to work this way.
Understand and set expectations
An old colleague told me that the answer to the question “How much will it cost?” was “How much have you got?”
That isn’t a question that you can actually ask but it does illustrate a point. If you are doing a job in a large property (or a commercial property) where only the highest standards have been accepted in the past, you mustn’t be surprised if only the best will do. And that costs money which means that you need to price accordingly.
Most people will have an expectation about quality of work, but your customers will also have an expectation on price. Surprises kill sales, which is why it is important to make sure that your prospect is thinking in the right ball park before they get your quote. Failing to set expectations can lead your customer to angrily reject your proposal, then inexplicably sign up with a competitor who is charging even more.
Both understanding and setting expectations is key to winning a job and then completing it profitably.
Only engage in sensible competition
You can only use competition on price as a strategy if you have a cost advantage over competitors. However, it’s hard to see where that would apply for normal installers. Big supermarkets have a price advantage by squeezing their suppliers until the pips squeak, but I doubt that any of us have this sort of power. That’s why we shouldn’t compete on price.
Estimating accurately is the key to competing while retaining a decent margin. This is because it enables you to confidently know how far you can go. The way that you can improve your skill at estimating is by reviewing each completed job and seeing what it actually cost you versus your original estimate. That’s hard work but it is key to success.
Your pricing cannot be hopelessly out of line with competition but you should always walk away if it’s getting silly and don’t aim to be the cheapest unless the competition is Rolls Royce.
Avoid price-driven customers
Very often, customers who are obsessed by price are the most difficult customers too. If they are super keen on a “deal” they are often unreasonable about other things. They see the price of everything but the value of nothing. They probably drive a Dacia Sandero. It’s best to let your competitors have them.
Think of things this way. How many times have you completed a job for a grateful customer who would have been happy to pay more? That’s called leaving money on the table. We’re not talking about ripping people off here, we are talking about sharing the value that your great work generates in a fair way.
Getting pricing right is the key to getting the most out of your business and generating the cash to enable it to grow. Best of luck with your endeavours.