8 Ways To Use Price Without Discounting To Get More Customers

1. Charge a Guaranteed Price

A guaranteed price is a flat rate price. This is the same as a “not to exceed” estimate. Numerous research studies show that consumers hate open invoices. Consumers do not have the expertise to judge whether a repair should take 30 minutes or three hours. This is why consumers try to pin field service personnel down to a hard number. They pester technicians to say how long a repair will take or how much it will end up costing. If the tech offers a number, that amount becomes “fixed” in the consumer’s mind. Whether intended or not, the tech just offered a flat rate price.

Why not do what more than 90% of consumers want and offer flat rate pricing. Guarantee your prices?


2. Flex Your Prices

You offer some parts and products that are relatively easy for homeowners to obtain and you offer some services that are simple and easy for the homeowner to tackle. By contrast, other parts and products are practically impossible for the layperson to obtain and other services are too distasteful, difficult, or impractical for the average homeowner to consider. Lower the margin on the former parts, products, and services, while raising margins on the latter. This is flex pricing. Retailers have done it for years.

The objective of flex pricing is to generate an average margin equal to, or greater than the company’s target margin, which is the margin necessary to cover overhead, generate a return for the investors’ capital, and provide funds for reserves and future growth. Because you’ll capture more business involving parts, products, and services homeowners can source and provide on their own, you should capture more repair business.


3. Never Charge Overtime

If you allocate your overhead against your standard labor hours, how much is left to charge against overtime hours? None. All you need cover with overtime is your direct costs. Everything else falls to the bottom line.

You field service pay increases for overtime work, but the increase is almost always less than the overtime component of your standard labor. In fact, I’ve never yet met a contractor whose overhead per hour was less the fully burdened top technician or plumber pay per hour. This means contractors could double time for overtime work, charge the customer standard rates, and still drop more to the bottom line.

There is a catch. If you charge standard pricing 24/7, you might pull some business from your standard hours into overtime. As long as your estimate of standard labor hours is accurate, this won’t impact your pricing or bottom line. Since you will capture more after hours calls if you promote “no overtime,” you’ll actually boost sales and the bottom line.

Some contractors avoid overtime work. They charge more to discourage calls that can be delayed. This works for companies with plenty of business that want to avoid burning out field service personnel. Nevertheless, these companies are leaving money on the table. Maybe they should consider adding capacity.


4. Provide Reference Prices

Service Roundtable contractor, Bob Ring, tired of his commercial customers griping about his rates. He asked the Service Roundtable to assemble a pricing reference chart that compares his prices and service delivery with other services, such as copier repairs, lift truck repairs, and so on. Bob’s point was that his prices are in line with other service company prices. He didn’t compare himself with clueless competitors, but successful service companies from different fields.


5. Sell Less For More

Walk into any grocery store and check the prices for packaged goods. Unit prices are higher when packages are smaller. Contractors should prices similarly. Instead of selling refrigerant by the pound, for example, sell it by the ounce and increase the price per ounce.


6. Vary Your Response Charge With Demand

When demand picks up and you’re straining to cover the volume of calls coming in, increase your response charge. Charge more for same day or priority service. Hotels charge more when demand picks up. So do rental cars and airlines. Demand is higher for the Super Bowl than any other football game and the ticket prices escalate accordingly (even so, scalpers prove that the NFL leaves money on the table and could charge even more).

Even the post office charges more for priority service. Why not you?


7. Sell Payments

The entire car leasing industry is built on the premise that people buy based on cash flow rather than total price. This is especially true when the economy falters. It may be challenging to find financing sources, but they’re out there. Independent, local and regional banks have money to lend. Call on them and work out financing arrangements.


8. Sell Breakdown Insurance (But Call It Something Else)

Service Roundtable and Retail Contractor Coalition member Steve Miles added a seasonal breakdown guarantee for a small extra fee. Once the company performs a tune-up, any repairs through the season ending date Steve specified are on the house. Thousands signed up for the program and only a few systems actually needed repairs. The program was a huge success.

Can You Afford To Be Generous?

Photo: powerbooktrance
On the drive to work, I swung by Starbucks. I stop by this particular Starbucks fairly often, but not enough for me to recognize any of their employees. The only clue to the amount of money Starbucks sucks out of me was my use of a Starbucks logoed mug, which was a gift.

I asked for the bold coffee. The barista rang up the order and took my mug to rince it out. She returned to sadly inform me that the bold wasn't ready. It would take another three minutes. Or, she offered, I could have Pike Place now.

In truth, three minutes is no big deal. I can pull out my phone and easily spend ten times that about amusing myself with Twitter, Facebook, RSS feeds, email, or one of the blogs I follow. Shoot, in a normal restaurant it takes a multiple of three minutes to catch the wait staff's attention (though servers always seem to be Johnny-on-the-spot when I don't want anything).

But I didn't want to wait three minutes this morning. I smiled and said, "Oh, just give me the Pike Place."

She cheerfully filled my mug and when I started to pay, refused to accept it. She said, "This one's on us."

A free cup of coffee isn't like winning the lottery, but it still felt good. A McDonald's is located about a quarter mile away. I doubt McDonald's would give me a free cup of coffee, though McDonald's promises coffee for less.

Photo: Robert Couse-Baker

Honestly, the margin in coffee is high enough that McDonald's has plenty of room to give a cup away now and then, but I doubt management looks at it that way. I suspect they think they're offering a generous price and nothing more is needed. At least, that's what their marketing suggests.

By charging more, Starbucks has more room to be more generous. Even though I pay higher prices at Starbucks, I feel like I'm treated better. Starbucks seems friendlier and more caring.

Coffee's not the same as in-home service, but it's still part of the service industry. Scale the principle and it can work for your company.

Do you charge enough that you can afford to make a generous gesture from time to time?

Negotiating Price

In the old Popeye cartoons, Wimpy never had enough money for a hamburger. He would offer to pay for today's hamburger in the future. Wimpy was trying to negotiate the terms of a fixed price sale.

It seems ridiculous when it occurs in a cartoon. It should seem just as ridiculous when your customers similarly attempt to negotiate with you. When your customer compares your price to a competitor's, is the customer comparing apples to apples or a filet mignon from a nice restaurant with the taco stand? After all, both are using beef. What's the difference?

When your customer wants to throw in something for free or only pay for your hard costs, is this like a consumer asking the hair stylist to add highlights for free? After all, the direct cost of the coloring isn't much. How much of a mark up does the stylist need?

When you customer wants you to cut your price, to "work with you," is this like a consumer asking the DVD store employee to cut the price of a new release by 60%?

If you think these examples are silly when reading them, try watching this video...



Once you offer a price, you simply cannot discount it. For years, Comfortech Idol was held as a competition between salespeople during the HVAC Comfortech Conference. Sales trainers role played as customers and a panel of judges evaluated each salesperson's performance (Greer was in the role of Simon, of course). During one Comfortech Idol, sales trainer Jim Hinshaw, played the role of customer.

"Come on," said Jim, "if you can just come down another $500, I think we can do a deal."

"Done," sighed the salesperson with relief that he finally closed Jim while a hundred of his peers looked on.

Jim rubbed his chin. "Well, you know, if you can find $500 that easily, I'll be you can find another $250..."

Once the salesperson compromised, he acknowledged the price he quoted wasn't the real price. Now, the only question left was how far he would compromise.


How To Discount

In truth, there will be times you will want to negotiate. You will willingly give something up to take the job. Yet, how do you do that while maintaining your credibility?

1. Discount by Addition - Don't change the price, but maybe you do throw in something extra.

2. Discount by Substitution - Substitute a less expensive product, procedure, or materials.

3. Discount by Subtraction - Cut the price, but take something away from the job to justify the cut.

4. Discount by Consideration - Cut the price, but require the customer to do something for you in return (like leave the yard sign up for six months).

5. Discount by Permission - Call someone at the office to get special permission to offer the job at a lower price (note: this won't work for the owner).

These are rational ways to discount. They allow you room to move without compromising your integrity. What if you discount without a rational approach? I'm confronting that very issue from the buyer's side today. Two companies want to print a book for me. The first is a specialist in book production. The company prints lots of books, is professional, and will do a good job.

The second really wants the business. I haven't met the printer, but everyone else in the company has and really likes the guy. He's local, which is a huge advantage. All things being equal, I'd give the job to the local guy everyone likes. But all things aren't equal. His initial price was 60% higher than the first company. When presented with the first company's quote, he said he'd match it.

While the second guy's done good work for us, his expertise isn't book production. Aside from quality concerns, I wonder if I'll get reprints for the same price after his other, more profitable business picks up. I wonder if I'll get prompt turnaround.

Here's the hole the second printer dug for himself. First, I'm nervous that he discounted 60% for this job and wonder if he'll cut corners. Or maybe, I wonder where he'll cut corners.

Next, I wonder if I've overpaid for other work he's performed. After all, he just lowered his price 60%. If he'll compromise 60% on this job, maybe he'll do it on every job. While meeting the first guy's bid may or may not win the job for the second guy, it has made all of his other pricing suspect.


Holding Your Price

Most of the time, you will simply want to hold your price and maintain your integrity. Sometimes this will cost you business. It's wise to continually inform your your customer base about your quality differences. Below is the header of an email marketing piece used by the Service Roundtable(R) to highlight the vast differences in similar seeming services that result in price variation. While you shouldn't go overboard with this message, it is good to remind your customers every now and then that you truly get what you pay for.


Another approach is shown below. This is another Service Roundtable example that was developed at the suggestion of Bobby Ring from Meyer & Depew for commercial service. The strategy here is to compare your service with other industries, such as copier service and forklift service. In light of what other quality service businesses from other industry's charge, your service is probably a good value.


When You Don't Give Fixed Prices

Flat rate pricing makes it easier to hold the line on prices. After all, you and the customer agree to a set price before work begins. Since you will hold that price even if the job runs long, you have every right to expect the homeowner to similarly hold up his end by paying you in full.

If you charge time and materials, it's mushy to the homeowner. There's no commitment on your part, which some homeowners interpret as a call for negotiation when the final bill comes due.

(c) 2009 Matt Michel

24 Ways to Boost Your Average Ticket - Part I

This is the start of a new Comanche Marketing series on boosting your average ticket, or average sale. I’ve compiled a couple of dozen tactics, but this number may change before I’m finished. I’ll add tactics when readers suggest new ways to boost the ticket I haven’t thought of (hint, hint) or when I stumble across new approaches. And also, when it comes time to write about the tactics, what seemed brilliant when building the initial list seems hopelessly stupid when I try to describe it. Well, let’s get started…


Why It Matters

Raising your average ticket even a few dollars can make a tremendous difference to your bottom line. Let’s consider the following scenario. A pure service company has an average ticket of $325. The company promotes braided steel washing machine hoses for $49 installed on all service calls. The company buys these hoses for $9. The time required to install one is so minor, it’s incidental (e.g., 5 to 10 minutes). On every 10th call, a customer opts to add the house on the ticket.

This works out to an increase in the average ticket of $4.90. The material cost increases $0.90, resulting in an increase of $4.00 in gross profit per call.

Hose Price	$49
Material Cost	$9
Gross Profit	$40
% Buying	10%

Increase in Avg Ticket	$4.90
Increase in Avg Material Costs	$0.90
Increase in Avg Gross Profit/Call	$4.00

Ho hum. Yawn. Four bucks. That’s a whopping net increase of 1.2% of sales ($329 / $325). Wooooow. I can retire.

Don’t get hasty. Let’s get into the numbers in a little more depth. For grins, let’s say the following roughly describes the company’s income statement. The company is profitable, but barely once Uncle Sam gets a cut.

Gross Revenue	$800,000	100%
Cost of Sales	$440,000	55%
Gross Profit	$360,000	45%
Overhead	$320,000	40%
Net Profit (Pre Tax)	$40,000	5%

Now, what happens when an average $4 of gross profit per call is added.

Gross Revenue	$809,846	100%
Cost of Sales	$442,225	54%
Gross Profit	$367,631	46%
Overhead	$320,000	40%
Net Profit (Pre Tax)	$47,631	6%

The company has increased pre-tax profitability 20%! Slight increases in a company’s average ticket can result in significant increases in the bottom line. While not the only one, this is certainly one path to prosperity. Let’s walk down this path and see what we find.


1. Raise Prices

Yes, the simplest way to increase your average sale is simply to increase your prices. If this seems completely obvious, it’s not. Many a contractor moans about average tickets without really pondering the notion of a bump in prices.

A recession may or may not be the right time to bump prices. If you aren’t profitable at your current price levels, you should figure out a strategy to raise prices or increase volume while holding overhead in check. Otherwise, you might as well cut prices to the bone and go out of business faster, sparing yourself the prolonged agony of a long, slow bankruptcy.

Let’s return to our pure service company. Assume the company’s billable hour rate is $125 and the company charges a $65 diagnostic or response charge. With a 40% material gross profit (i.e., 67% mark up), and average of 1 billable hour per call, the company’s average service call looks like the following.

Average Ticket	$325
Diagnostic	$65
Repair Charge	$260
Labor Rate	$125/Hr
Billable Hours	1.0
Labor Charge	$125
Material Price	$135
Material Cost	$81
Material % of Total (Average Ticket)	41%

Bump the billable labor rate, 10% and the following results.

Average Ticket	$338
Diagnostic	$65
Repair Charge	$273
Labor Rate	$138/Hr
Billable Hours	1.0
Labor Charge	$138
Material Price	$135
Material Cost	$81
Material % of Total (Average Ticket)	40%

The total charge increased $13 or 4%. Let’s see the impact on the bottom line.

Gross Revenue	$831,818	100%
Cost of Sales	$440,000	53%
Gross Profit	$391,818	47%
Overhead	$320,000	39%
Net Profit (Pre Tax)	$71,818	9%

The pre-tax profit increased 80% or $32,000!

Of course, price increases might scare away customers. How many calls would this reduce? Let’s say 5%. That’s likely unrealistic. It would lower total company revenue. Yet, the company still makes more money!

Gross Revenue	$790,227	100%
Cost of Sales	$418,000	53%
Gross Profit	$372,227	47%
Overhead	$320,000	41%
Net Profit (Pre Tax)	$52,227	6%

The company would need to lose just over 8% of its customer base for the price increase to have a negative impact on the bottom line. In all likelihood, no one would notice. As Jim Kimmons, who developed the original Callahan-Roach flat rate system used to say, “If the customer’s upset at $338, would he be thrilled at $325?” The answer, of course, is no.

Increasing your prices a small amount, even during a recession, may have a huge benefit to your company profitability. And if you aren’t profitable, what’s your choice?

Surprisingly, many contractors hesitate to raise prices because they don’t want to order new price books. That’s the silliest notion of all. Who wouldn’t spend an extra $2,000 if they could be guaranteed it would result in $32,000?


2. Courtesy Inspections

Charlie Greer teaches service personnel how to perform a “courtesy inspection.” Friends of mine have used Greer trained companies, reported that the inspection uncovered other issues – some had been festering for years – resulting in higher tickets AND… happier customers.

At the end of the work, the homeowner spent much more than the original problem necessitated and thanked the service personnel.

Charlie describes his approach to a Plumbing Courtesy Inspection on his website. It’s worth the read…

Here’s the scenario: I went to the immediate problem that prompted the service call, checked it out, and said, "Okay. I can fix that. That won’t be a problem," thereby putting the customer’s mind at ease.

I then said, "You know, Mrs. Smith, whenever I come out to someone’s house, I always do a quick, courtesy inspection of all their fixtures and drains, just to see if there are any little free adjustments I can do."

Charlie proceeds to check stuff out, tighten things that are loose, clean aerators, and so on. In the process, he builds his value, builds customer rapport, and creates a sense of obligation. In the course of the inspection, inevitably problems or deficiencies are revealed. In many cases, addressing these now will save the homeowner a lot of money down the road. Other times, the problems are like open sores, festering and irritating.

Sometimes the homeowner knows the problem should be fixed, but lacks the skills, knowledge, or inclination to tackle the job. That’s where you crack team of professionals comes in. It’s why you were called in the first place… to solve problems the homeowner couldn’t solve for himself or herself.

Other times the homeowner isn’t even aware the problem could be fixed. Millions of homeowners live with comfort problems, unaware that it’s possible to have even and consistent comfort levels throughout the home.

Remember, no consumer knows all of the things you can do for them like you do. You offer products and provide services that could improve their lives, but you can’t keep them a secret.


3. Sell Service Agreements

This is another no-brainer. Service, or maintenance agreements are contractors between you and the customer to perform repetitive annual maintenance at discounted rates scheduled at times convenient to both of you. Service agreements help you fill in valleys of demand, keeping your service force working during slack times.

Because they are prepaid or charged monthly, service agreements also help with cash flow. And, they represent an unspoken agreement between you and the customer that the customer will do business with your company exclusively during the term of the agreement.

Service agreements are well accepted in the HVAC and pool industries, less well accepted in plumbing, and practically absent from electrical. Often, plumbers and electricians express skepticism about their ability to sell and maintain a base of service agreement customers. The trick is to build sufficient value that the service agreement is an obvious value for the homeowner.

Pool & spa varies around the country, but generally the contractors build up maintenance routes and then, incredibly, sell them. Why not keep the route and keep the future add-on, accessory, toy, and backyard oasis sales? Why not keep the future equipment replacements and resurfacing?

Call takers and dispatchers should start the service agreement sales process by stating at the appropriate point, “I’m required to inform you that we give priority service and discounts to our service agreement customers.”

Pause, and if the customer asks about the service agreement say, “You can save quite a bit of money with our service agreement. In addition to priority service and a ___% discount on repairs, the service agreement includes… [benefit, benefit, benefit]. The investment is only $______. Would you like to save money with a service agreement or simply schedule your repair today?”

Even if the homeowner refuses the service agreement, the stage has been set for field service personnel to repeat the offer. One of the best approaches is to use an apples to apples comparison sheet that compares today’s repair plus the service agreement with today’s repair plus the maintenance services covered by the service agreement.

© 2009 Matt Michel

What Would Uncle Frank Think?

Originally Posted 1.7.09

Believe it or not, this is the best time you’ll have to buy a car or truck for years to come. The rebates offered by the automakers are incredibly lucrative. In fact, they’re insane.

According to the general manager of a local Ford dealership I know, only a fool would buy a vehicle under a fleet program today. Rebates and incentives are far more lucrative. Sure, it sounds nice to hear that some fleet program will save you $5,000 off the sticker, but the incentives are better. One manufacturer, for example, is offering $10,000 in rebates for every with a diesel engine. Why pay more for the fleet program?

Normally, the automakers use rebates to clear dealer inventories, taking a financial hit, and then recovering some of it when they load the dealers the following months. Not this time.

The automakers are following a pattern that seems to repeat every ten years or so. “Business Week’s” auto industry analyst Ed Wallace recently noted that, “I've seen this before, in 1974, 1980-81, and in 1992, when Detroit automakers found their backs against a wall. It's based on one fundamental reality: Detroit is setting up for a continued downturn in the market.”

The automakers are clearing the deck and scaling back production. They’re going to jack up prices so they can cover their overhead and make money with higher margins from the sale of fewer cars. This means fewer incentives, fewer fleet programs, and generally higher prices going forward. If you’re planning on replacing your company trucks, do it now.

According to Ed Wallace, “If history is any guide, what we witnessed in 1974, 1980-81, and 1992 was a fairly consistent series of price increases to create profits even as sales tanked.”

Raise prices to make more money on less volume? What would Uncle Frank think?

For those who don't know, Uncle Frank is Frank Blau who was one of the original prophets of profitability for contractors. Frank advocated charging what you needed to make a fair profit.

© 2009 Matt Michel

Add Ons Work Like Magic

The easiest way to boost your company's profitability is to increase add-on sales during service calls. For a profitable company, the gross profit from an add-on sale magically falls straight to the bottom line.

Read the rest in a column I wrote for Contractor Magazine.