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PHC contractors should strive to deliver excellence to consumers at prices that will allow them to recover their true cost and earn the reward they deserve for the delivery. The consumer’s goal is to receive excellence at the lowest price. The common denominator is excellence. The selling price of excellence is usually the point of contention.
Value buyers know technicians who are capable of delivering excellence don’t come cheap; top quality material is more expensive than that which is poorly made. And, contractors who want to deliver excellence incur higher costs than those who don’t care.
Price buyers do not get the best job at the lowest price. Since mediocrity and contractor prices vary haphazardly, the price issue is further muddled, making it difficult for price buyers to know which contractor to trust when basing decisions solely on the price.
As a contractor, you have the responsibility of clearing up that confusion by educating the consumer in that which is logical, mathematically correct, and fair for them, as well as your business. After all, fair is a two-way street. Price buyers must be made aware of the fact that excellence costs more than mediocrity, but it is always the least expensive choice in the long run. To accomplish this, you must be, and be perceived as, honest and intelligent.
Facts to consider
To correctly address consumer concerns regarding your services and prices, consider the following.
Profit is the only reason your business exists. Selling at or below your true cost makes for a financially distraught business.
Selling above your true cost requires the correct calculation of your true operational costs.
Selling above your true cost requires a profit margin that can withstand the problems and associated expenses you will incur serving the public, while still earning your business a true profit.
You will face problems—minor and major.
There are steps to removing those problems, if you embrace and properly implement the appropriate solutions.
Consumers want value for their money. Value is a consequence of excellence.
You must excel at your technical and business abilities in order to deliver excellence to your clientele.
After you acknowledge the aforementioned facts, rid yourself of negative thoughts that create undesirable business results. When you say “I can’t,” you are really saying “I won’t.” In turn, you can not figure out how you can.
However, there are contractors who can and do. They have an opportunity to succeed by setting up viable business plans and charging properly profitable selling prices, while the "Negative Nellies" lose before they begin.
Success requires positive thinking
Let’s look at four negative and fearful thoughts I’ve heard from contractors over the years. After each scenario, I have included "the reality" to show the positive thinking that logically contradicts the negative statement.
Fear #1: “I can’t charge higher prices!”
Reality: You must charge selling prices that are sufficiently above your true cost to perform services to allow you to bring in more money than it costs you to provide those services. If you don’t, you will not allow yourself to make a profit, thus defeating your primary business goal.
Fear #2: “Consumers won’t pay higher prices!”
Reality: Consumers will, and do, pay higher prices for value derived from excellence. History proves this. Cars exist to allow us to travel from point A to point B. If fear #2 was true, everyone would drive the least expensive vehicle. But, look at the cars on the road—you see vehicles that range from $10,000 to $500,000.
Consumers don’t dictate price levels. If they did, they would have you pay them for the privilege of using your resources to service their requests. Consumers only dictate the amount they are willing or able to spend.
Prices can only be properly profitable when you sell above your true cost. As a businessperson, you are responsible for establishing your pricing protocols. Your prices should never be quoted based on the competition’s prices, which are probably at or below their true cost. Price your services intelligently, not ignorantly and/or fearfully.
Fear #3: “If I raise my prices, I’ll lose business!”
Reality: When you set your prices above your true cost, you can achieve the goal of your business, which is to make a profit. Losing business that allows you to be profitable is bad.
However, you can, and should, afford to lose the business that costs you more to provide than the money you receive. Price buyers who want you to pay so they can enjoy the fruits of your expertise and labor are nonessential. Let those consumers run the low-ballers out of our industry.
The chart that accompanies this article proves why you can afford to lose non-profitable consumers. The numbers used are based on an arbitrary $100 per tech hour selling price for labor and overhead.
The numbers in the chart are meant only as a mathematical example. Your cost may be, and very likely is, higher. In which case, your selling prices should be higher.
Please note that at present $100 is the least it costs PHC service contractors in the U.S. for one tech/truck hour (that means no profit), when a maximum of 1,708 hours are sold per tech annually. That’s a minimum annual cost to you, the contractor, of $170,800 per tech/truck, if you calculate true cost correctly.
If you sell tasks at $100/tech hour, you can’t afford to lose any business, so you must sell all available tech hours to recover your cost. But, with a 10 percent increase, making your hourly selling price $110, you would bring in $17,080 more than you brought in at the $100 level. If you lost 9 percent of tasks due to the increase, you would still bring in the same $170,800 you brought in before the increase.
At a 50 percent increase, you could lose a third of your business and still bring in the same amount of revenue as you would have before the increase. But, if you lost none of your business, you would have an extra $85,400 for the same workload. Your prices may have to be increased, depending on the variable factors you incur to operate.
Fear # 4: “If I charged higher prices, I would not be able to sleep at night!”
Reality: If you are selling at or below your true cost, you are already losing sleep as you try to figure out how to survive. If you bring in more money because you sell your services sufficiently above your true cost, you will have no trouble sleeping.
You must come to the realization that you can charge prices that will cover your costs and maximize your profits because it’s the correct business approach to implement. You will be able to pay your employees well and your creditors in a timely manner, while delivering excellence to your clientele for the services you render to them. Furthermore, you will be able to attain your American dream while you sleep well.
Once you know your true cost and have chosen a proper profit margin, you must select your pricing policy: contract pricing or time and material pricing. Contract pricing allows you and the consumer to come to a meeting of the minds before the service begins. You perform the service as agreed; the consumer pays the agreed price. No legitimate arguments!
T & M pricing allows you and the consumer the opportunity to argue about the price after the job is done, since no one agreed to the final price ahead of the service being performed.
After you see the conditions surrounding any task and quote the contract price, a consumer might initially get sticker shock. They might say, “That’s expensive! How did you come up with that price?”
Your honest, intelligent, rapid and correct response should be, “We use a cost-integrated factoring system, which enables us to give you an accurate price for any given service prior to commencement of the task. It gives you the information you need to know to decide whether or not to approve of the price and authorize our firm to perform the task for you. It takes into consideration the many costs we incur in order to service your needs properly and assure you we will be here to service your future needs. It is based on the average of similar tasks. And, our price for a specific task doesn’t change after the fact, regardless of the time we spend to perform the task. This system protects you before and after the work is done, since you have the exact price of a task prior to commencement of work, rather than a shocking bill to which you never agreed.”
Once you properly calculate your numbers, choose a winning business plan and implement both, you can believe in yourself and your business protocols. For the appropriate solutions to implement regarding this or any other contracting business related matter to attain your contractor profit advantage, call me.
Richard P. DiToma is a contracting business coach/consultant and an active PHC contractor. For information about the CONTRACTOR PROFIT ADVANTAGE or to contact Richard: call 845-639-5050; e-mail firstname.lastname@example.org; mail to R & G Profit-Ability, Inc. P.O. Box 282, West Nyack, N.Y., 10994; or fax 845-634-7236.