Low Pricing: There’s No Virtue in Bankruptcy

Too many contractors set their service pricing by accident. For this reason one contractor out of five closes every year when the economy’s strong, let alone when it’s weak. Service pricing should be set at a level where you can pay your bills, pay yourself, pay your employees, provide training, invest in the growth of your company, and leave a little left over. In other words, service prices should be set to earn a targeted net profit.
Sounds obvious, right? The question then, is why don’t more service companies charge what they should?

Read More at Contracting Business.

Two Cab Rides

David and I called a cab to take us from a business meeting to the hotel. At the very instant the cab pulled up, the meeting got interesting. We kept the cabbie waiting for a few minutes while we wrapped up and apologized when we loaded our luggage into the cab. The cab driver didn't seem to mind, though he did say that the dispatcher was getting itchy.

The cab ride was short. It was only a couple of miles. We were recapping the meeting for most of the trip. When we finished, the cab driver engaged us in the usual type of cab conversation. Where are you from? Why are you here?

At the hotel, the cabbie discovered that his meter hadn't reset from his last fare. It's going to be about $10, he said, but he has to get a supervisor to give him the fare amount. He worked the radio while we waited in the back seat. The supervisor wasn't readily available. The cabbie was clearly embarrassed about the wait and offered several apologies, which we brushed off.

"We made you wait," I told him. "It's okay for you to make us wait." A few minutes later, David offered the same comment.

The supervisor finally returned. The fare was $10.30. David paid $20.

The next morning we needed a cab to go from the hotel to the office. There wasn't a hotel bellman working the cab stand and we wanted a cab with a credit card terminal, so we walked down the line of cabs to find one.

The first cab with a terminal was eight cabs back. We shortened the cabbie's wait by pulling him out of line. His only comment was to grumble that we weren't going a long way.

He said it again before we got out of the parking lot.

"Yeah, you said that already," barked David in a clear signal that his tip was at risk if he continued to gripe. He did.

He griped that individual cabbies couldn't buy a medallion and that the cab drivers didn't stick together like they did in other cities.

"So move," said David.

"This is my home," snarled the cabbie.

So far, we'd travelled about a block. The cabbie commented again that we weren't going very far. He noted that there was a hotel much closer to the address we were going to and we could walk across the street from that hotel. Not quite. And with our luggage, we would've called a cab from that hotel too.

The cabbie informed us that a medallion cost $300,000 in New York and stated his belief that two people driving a cab over two shifts could each make $50,000 per year and pay it off in three years. I could be wrong, but I think he overlooked living expenses and pay for the second driver. I didn't ask about it.

He asked where we were from. David told him Dallas. He said, "Figures. You can always tell the ones from Dallas."

"What does that mean?"

"People from Dallas and Houston. They're different. You can tell."

He mumbled the rest.

Just before we arrived at our destination, the cab driver must have realized he was shooting himself in the foot. He started talking about the beauty of the sunrise and took a picture of it.

When we arrived, the total on the meter was a little less than $10. David paid the exact amount.

You couldn't ask for a different experience. The first cab driver underperformed the technical aspects of the job. He messed up the meter, which required us to wait while a supervisor gave him the fare. The final fare, based on the supervisor's estimate, was higher than the metered fare the next morning. The first cabbie overcharged us. By contrast, he second cab driver was technically perfect and accurately priced.

Yet, the first cabbie clearly outperformed the second. When tips were included, he was voluntarily given double the fare. If given a choice between walking and enduring another ride with the second cabbie, I would seriously consider walking, luggage and all, which is how some homeowners feel about home service companies.

With cabs and contracting, the distinguishing feature of the service is not the technical differences or even price. It's the interpersonal differences.

Technical proficiency is not enough. Offering a better price is not enough. Good human relationship skills are also required. Simply being a nice guy can overcome a technical miscue and allow you to charge more.

33 Approaches to Overcoming the Price Objection

The most feared objection for most salespeople is the price objection. The salesperson might hear a prospect state outright that it’s too expensive, that someone else offers similar products or services for less, or simply demand a better number.

The price objection never goes away. I’ve encountered it when selling HVAC products in the high rise plan & spec market (about as competitive as it gets), when selling pure intangible products like consulting services, and when selling a product (i.e., the Service Roundtable) that costs 1/20th of some competitive products. People complain about price at every price level. The absence of any price objections is taken as a sign by most business people that the price is too low.

Price objections are normal, expected, and even welcomed by top sales professionals. Stated objections can always be addressed and overcome. It’s the unstated ones that concern most professionals.

Price objections are really buying signals. The prospect is telling you he’s ready to buy if you’ll give him a little help. According to research studies, price is the most important factor in roughly one out of seven purchases. In six out of seven, it’s secondary! Nevertheless, the price objection remains the most feared of all objections.

Here are 33 approaches to overcoming the price objection for in-home sales. Some are very similar and simply represent different ways of saying the same thing. Others are formulistic, like “feel, felt, found.” They come from different sources, such as Ziglar, Hopkins, Tracy, Novak, McCart, Greer, McCormick, Cunningham, Howard, Piscitelli, Cameron, and dozens of other sales professionals who have influenced me through the years. Each should be used situationally, based on your read of the prospect, your comfort level with the response, and your internalization of the response.

Pick a few that you like and practice. Make them yours. Adjust them for your company and industry. When appropriate weave stories around them. Ziglar tells a great story about buying a cheap bike for his daughter that broke after a few months and had to be replaced. He describes how he figured he better spend more for a bike that would last. He notes how his daughter rode the more expensive bike for years. He then drives the point home by breaking down the monthly cost of ownership for each bike.

Here are the responses…

1. Really? My price is too high? [Then, shut up.]
   
   
2. What do you mean by “too high?”
   
   
3. If I may ask, what is your budget?
   
   
4. Compared to…?
   
   
5. Is price the only factor in your decision? Is it the most important factor?
   
   
6. Okay, let me recap. We sat down and built this system together, taking into account utility costs / health concerns / comfort / safety / home value. We didn’t account for price. Is it more important that one of your other factors? What should we remove?
   
   
7. This is a beautiful home. Since others in the area cost less, price must not have been the only factor or even the most important factor when you bought this home. Now, you’re faced with one of the most important decisions you’ll make for your home. You don’t want to make this decision based on price alone do you?
   
   
8. It’s a fair price and I can’t lower it without taking something out of the job. Do we need to see what we can cut to meet your budget?
   
   
9. I know this sounds trite, but it really is better to spend a little more than you planned to get what you want than to spend too little and risk losing everything [or being miserable for the next 15 years].
   
   
10. If we can arrange for financing, would that make it more affordable / attractive / comfortable?
    
    
11. Of course it is. Let me explain why.
    
    
12. It’s true that the initial cost or first cost is higher, but when you factor in operating and maintenance costs over the life of the product, you’ll find a different story. First cost may be a little higher, but the total cost of ownership is far less.
    
    
13. Why do you think it’s higher?
    
    
14. That’s interesting. How do the price, products, and other companies you’re considering compare?
    
    
15. Most companies in our industry have comparable net profit margins so price shouldn’t vary much from one company to the next. If it does, there’s a reason. Did you ever see the movie, The Towering Inferno? The movie is about a fire in a skyscraper. The fire started when project costs were running over budget and the electrical contractor cut costs by using lower quality wiring. It’s the type of thing few people would notice. Unfortunately, the wiring didn’t handle the load and short circuited, resulting in a devastating fire. I’m not saying that other companies are using substandard materials, but there’s got to be something different.
    
    
16. You’re right. We do charge a little more. Do you know why? We’re worth it.
    
    
17. If you can show me a cheaper proposal, I would be happy to match it item for item with identical warranties and guarantees.
    
    
18. Years ago, quality expert Phil Crosby wrote a book entitled, “Quality is Free.” Crosby noted how higher quality pays for itself, the savings are hidden. Here the savings are breakdowns you’ll avoid, emergency service calls you won’t have to pay, and hassles you’ll miss. The point is that it’s worth spending more for better quality.
    
    
19. I understand that my price may be a little higher. A long time ago when I started my company I made a decision. I decided I’d rather explain a higher price every now and then, than apologize for poor quality forever.
    
    
20. Hmm. I suppose I could lower my price. What would you like me to take out to get the price down?
    
    
21. You’re right to be concerned about the price you pay. It’s a big decision and most people can’t afford to make a poor choice. Do you think there’s a difference between our company and the others you’ve talked with?
    
    
22. Do you want me to show you something cheaper?
    
    
23. Yes, our price is higher but you won’t have any regrets with us. It’s why we offer such a strong guarantee. Isn’t it better to invest a little more than to invest too little and risk your entire investment?
    
    
24. I understand how you feel. Mr. Jones, one of your neighbors felt the same way a year ago, but after buying he found that the added performance we delivered, the quality of our work, and the support we provided after the sale was worth far more than any money he might have saved with someone else.
    
    
25. Yes, it is a little more expensive. It’s the best on the market. Don’t you and your family deserve the best?
    
    
26. How much is the difference? You say that we’re $500 high? Well, this product carries an average life of 15 years. That works out to $33 a year or 64 cents a week. Isn’t it worth an extra 64 cents a week to get exactly what you want and do business with an established, reputable company like ours? After all, that’s what… a cup of Starbucks every month?
    
    
27. Am I offering more than you want?
    
    
28. It is a significant investment and not the type most homeowners make very often. But, you’re going to have to live with this decision for years. Isn’t it worth a little more to be sure?
    
    
29. I bet you hear the same thing in your business. You know, I can probably get [high school kid / offshore programmer / Legalzoom or other website / etc.] for less than it costs to hire you. [Then, shut up.]
    
    
30. I’m sure it’s tempting to select a company desperate for business and willing to work for less. However, may I suggest that anyone who charges more than a couple of hundred dollars less is probably either cutting corners or cutting profits? You don’t want the first and may not care about the second. You should. It’s a sad fact that a lot of companies in our industry close every year. A year from now you probably won’t remember what you paid but five years from now you may take great comfort from the fact we’re still around to honor our warranty.
    
    
31. My price may be higher, but I offer you something no one else can match. Me. You get my personal service and attention now and in the future.
    
    
32. If you don’t mind, let me ask, have you ever paid a premium for a product or service? Why did you pay it?
    
    
33. I’m sure they believe they match up with us. When I was in junior high I loved baseball and looked up to one of the high school pitchers. This kid could do it all. I was sure he would go pro and pitch in the World Series. After practice he used to talk with us, telling stories about the home runs he hit and the batters he struck out. One day he bragged that he could strike out anyone. “What about Hank Aaron,” asked one of my friends.
    
    “Sure, I could strike him out,” he said casually. “I’d take him down with three pitches.”
    
    Wow, I thought. This kid was so good he could strike out Hank Aaron. A few years later, I was watching a home run derby on television when I remembered the comment about striking out Aaron and laughed out loud. There was no way he could’ve managed to get one strike. The greatest home run hitter of that day would have shelled him. The competition is a lot like this high school kid. I liked the kid and know he believed his boast when he made it. Likewise, I’m sure the other company believes they can match us. That doesn’t mean they can.

Do you have any you would like to add? Email me!

© 2009 Matt Michel