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The four prices you'll use are:
- Initial Task: Standard Rate for Non-Agreement Customers
- Initial Task: Service Agreement Rate (Discounted 10-15% off the
Standard Rate, 15% being better). Note: This is the price you actually want to
hit your break-even point and your projected net profit on the initial task
- Additional Tasks: Non-Service Agreement Customers
- Additional Tasks: Service Agreement Customers (10-15% lower than the
Non-Service Agreement Customer price).
Your service agreement customers get an across-the-board discount of parts and
labor. The higher the discount, the more service agreements you'll sell.
That's because it's easier for the customer to see a "break-even" on their investment for the service agreement.
15% is a good discount. Don't worry, you can afford it. More on that
later.
We're going to work in a manner that may seem backwards, but you'll soon realize is the only intelligent way to put together a price book.
You may know some of these things, but others reading this post may not, so I'm taking it from the top.
When people tell me their pricing strategy is based on such things as a "30% allocation toward overhead expense," that usually indicates they haven't done their "breakeven point" calculation, which is a scientific procedure you follow to determine exactly how much money you need to take in per billable hour.
You see, once you've done your "breakeven point" calculation and based your price structure on it, your overhead no longer viewed as a percentage of sales.
If you've never done your "breakeven point" calculation, stop what you're doing and do it right now. That is the best advice I can give anyone in business.
Most people, after doing their first "breakeven point" calculation, don't know whether to feel relieved at finally understanding why they don't have any money, or lock the doors to their business, throw away the key, change their name and get a paying job.
That's because a "breakeven point" calculation usually shows that it
costs a lot more per billable hour to run a company than most people expect it
to and consequently, shows that you need to charge considerably more than you
are, which is scary.
Tom McCart has a free "breakeven point" calculator on his website: http://nosecrets.com/pricing.htm.
He calls it his "Labor rate calculator."
We're going to start by determining your service agreement price for "add-on work" covers what you need to hit your "breakeven point" (the point at which all your company's expenses are met) and your desired 15% net profit.
Tom McCart's calculator includes your projected net profit percentage.
Since all costs associated with parts, i.e. acquisition, theft, breakage, loss, damage, warranty, etc. are already incorporated into your "breakeven point," you only need to divide your parts costs by .85 to get your 15% net profit on parts.
I realize this may sound a little odd, because most people are used to using a sliding scale of multipliers on parts, but that is when you're using guesswork to determine overhead expenses.
We're not guessing at our expenses any more-they're ALL covered in our "breakeven point" calculation.
Your service agreement price for "add-on work" is your lowest price in the book.
Divide your "service agreement add-on work rate" by .85 and you've got the non-service agreement rate for add-on work.
Do you realize now that you've got all the money you need to stay in business and generate a profit with these two prices alone?
What we need now is to cover ourselves for the time it takes to arrive on the job, perform a cursory diagnosis, consult with the customer, do a little clean-up, paperwork, etc.
All of that adds a good hour to most calls.
Your "breakeven point" calculation told you what you need to charge per hour to stay in business.
You divided it by .85 to get your desired net profit. Your technician efficiency for your "breakeven point" calc should be based on approximately 50%.
They work eight hours and probably bill out only 4 on the average.
As an example, let's say you determine that your hourly rate should be $150 and that covers all overhead expenses and your desired net profit of 15%.
That's your service agreement rate.
At 50% efficiency, we need to get a good, solid $75 to cover these additional expenses.
Your "dispatch fee" (also known as "trip charge") is discretionary and should be what you believe your market will bear.
The dispatch fee should be something, but the lower the dispatch fee, the easier it is to "capture" incoming
calls.
It's easiest to capture calls by telling customers you waive the dispatch
fee if the work is performed on the same visit. If your company waives the
dispatch fee, add the $75 to the service agreement add-on task price to get the
primary task price. That means customers save $75 per each additional task
you perform during the same visit.
Companies that don't waive the dispatch fee handle it in the following
manner: In this example, let's say the dispatch fee is $40. That leaves $35 to "recover" to maintain our billable hour efficiency.
Add that to the "service agreement add-on price" and you've got the service agreement "single or first task price."
Divide the "service agreement add-on price" by .85 and you've got the non-service agreement "single or first task price."
If you're a company that waives the trip charge when the work is done on the initial trip, simply add the entire $75 to the service agreement "add-on task price" to get the service agreement "single or first task price."
Divide that price by .85 and you've got the non-service agreement "single or first task price."
Now you've got your four prices.
For more information on this topic, click here:
Don't Buy Into the New Pricing Strategy That's Been Going Around!
If you need help showing your techs how to succeed with this, call or e-mail
me and I’ll come out and run calls with them and show them how it’s done.
What I do during a typical first week, my sales figures and your
costs are all written out for you in excruciating detail on my website. Click
here for more details on Charlie Greer's One-on-One Training.
An alternative to having me run calls with your techs is to send them to my
four-day school in Ft. Myers, Charlie Greer's Sales Survival School for plumbing and HVAC techs and HVAC salespeople..
Of course, let’s not forget the increasingly popular Service
Technician Survival School, a 2-day school held intermittently throughout the
country. In its two years of existence, the book has been updated eight times and I’ve
had a good number of people attend more than once.
Click
here for links to our other articles
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