Don't Buy Into the New Pricing Strategy That's Been Going Around!
There is a current trend in the service business to go to "one-column pricing." It doesn't work. For years I've been an advocate of what is commonly referred to as "four-column pricing." I'll explain the reasons why I support this later in this article. For now, I will remind you that I still run calls in the field, so I hold my opinion above debate by those who do not run calls.
I just spent two weeks cleaning up the mess "one-column pricing" made in the shop of one of my previous clients who has since come back into the fold.
I'd been out to his shop three times in the past and had shown some excellent, almost amazing, results. As a result of my One-on-One Field Training, the techs had a very high average sale (more than most shops), they almost never got a "turn down," and they were selling a service agreement on most calls.
The owner of the shop called me, very despondent. He explained that, upon the advice of a consultant, he'd gone to "one-column pricing" (the "Service Agreement Price") because the consultant wanted techs to sell "add-ons" and Service Agreements based on "value" and not just on the discounts customers receive by getting all their plumbing, heating and cooling needs taken care of all at once instead of spreading them out over a period of time.
My client said that, after several months of working under this strategy, the only discernable results he could see were:
- Increased "turn downs," where no sale was made Everything was being sold at the "Service Agreement Price," which, when it was previously available only to Service Agreement customers, meant that occasionally (usually only on one-task calls), the smaller sales were made at the considerably higher "Standard Rate," which was good His techs were unable to sell any Service Agreements (due to the fact that the financial incentive of enrolling in the Service Agreement program on-the-spot was gone) His techs were getting one task per job (due to the fact that the financial incentive of having more than one task done per job was eliminated) Billable hour efficiency was abysmal (an easily predictable result). I went back out to his shop and ran some calls to see if I could make that system work. I played around with it some, to see if some minor modifications would do the trick, but I was unsuccessful. My average sale dropped 32% from where they'd been on my previous visit of exactly two years prior.
He then printed out price books with only three columns:
Initial Task: Standard Rate for Non-Agreement Customers Initial Task: Service Agreement Rate (Discounted 10-15% off the Standard Rate). 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: The same price for both Service Agreement Customers and Non-Service Agreement Customers at a discounted rate compared the same task done as an initial task. That was okay, but there was still no immediate financial incentive for customers to buy a Service Agreement on a call with a total price under about $600, so service agreements were a tough sale rather than their normal easy sale.
I love plumbing service agreements because they have very little cost to the contractor, they help the techs reach bonus level and they help me show the customer how I'm giving them a "break."
One of the benefits of a Service Agreement is supposed to be discounted pricing, but if non-agreement customers pay the exact same rate for add-on tasks as agreement customers, well, what's up with that?
Something's wrong there.
Shouldn't Service Agreement customers get a discount on the additional tasks as well? Does your service agreement say "discount pricing on the initial task only?"
Besides, what's wrong with deciding what you'd need for a task as an "add-on," then dividing by .85 to come up with the "non-agreement customer" price anyway? That actually was the clincher that made my client consent to issuing another price book with four columns:
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). The dollar amount of my average service call immediately rose 35%, so did the my average number of tasks per call and my billable hour efficiency. The techs loved it and so did the customers.
Now we're back to recommending having everything done at once, based on the savings they receive by becoming a Service Agreement customer and taking advantage of the deep discounts they get with the "add-on rate," instead of basing our entire presentation on "value." We're making more sales, we're solving more of our customers' problems in one call and as a result, seeing happier customers.
What does selling the product based on "value" mean, anyway? Okay, I looked in up in Webster's, and here's how they define "value':
An amount, as of goods, services, or money, considered to be a fair and suitable equivalent for something else; a fair price or return. The amount of money for which something can be exchanged in the open market; monetary or material return.
Well, I'll be. Looks like the word "value" all goes back to the money. Just as I've always said.
What is the best, most important thing to stress when you're in a selling situation?
A lot of people will tell you to stress "quality." Others will tell you to stress that your products or services are "the best."
Read the next few paragraphs very closely, because you're about to learn something that you'll never learn from another sales instructor as long as you live.
People don't necessarily want to spend the money for "quality," and people don't want to spend the money and possibly don't even feel they're worthy of owning "the best." Price is a BIG concern.
Sure, I know that people can pull out any number of surveys, consumer studies and focus groups to contradict my point, but I really think you need to keep in mind that the majority of these surveys, studies and focus groups were formed to prove a specific point and worded their questions to steer people into a certain type of answer. Plus, people tend to say what's expected of them, and who wouldn't say that when shopping for any product or service, their top priority is "quality" and that "price" is only a minor concern?
Overuse of the word "quality" in a sales presentation often translates as "over-engineered, over done, overblown and overpriced."
While it's true that only rich people can afford to buy cheap products and services, most people aren't intelligent enough to realize the lowest cost way to go with is quality and the best.
Here's another tip, don't save customers money "in the long run." Most people aren't intelligent enough to save money in the long run. They need to save money today, which is what the Service Agreement combined with the "add-on rate" does for them.
So, what is the most important thing to emphasize in a selling situation? That accepting your recommendations is the way to spend the least amount of money possible. Or, as someone put it during a seminar recently, "That you're giving them a â€˜deal'or a â€˜break'" Another way of putting it is simply to stress the "savings."
That's what "four-column pricing" allows you to do. You can show customers how you're giving them a break by, as a courtesy, by making them a Service Agreement customer retroactively (which is an awful lot like buying the insurance after you've already had the accident) and by using the "add-on rate" column in your price book
Lots of times, when I've been called out for a simple problem, then run my short "courtesy inspection" of the rest of their fixtures and drains and found additional things to take care of for them, as I've shown them the price, I've closed the conversation by saying, "So, if you've got the money, doing it all now is the cheapest way to go."
"Four-column pricing" makes multiple tasks per call and Service Agreements easier to sell, which is good. Sure, I'm a sales trainer, but what I really like to do is take as much talking and "selling" out of the picture as possible by letting the figures do the talking for your techs.
You can supply all the sales training in the world and most techs still will never be become serious salespeople. Listen, if they wanted to make more money by selling more, wouldn't they just get a job as a salesman and keep their fingernails clean?
In conclusion, "four-column pricing" is the way to:
- Increase your average dollar amount per call Have happier customers (because they all get an opportunity for a "price break" and you solve more of their problems at a discounted price)
- Make it easier for your techs to sell multiple tasks per job (increasing billable hour efficiency) Make your service techs happier (consequently reducing technician turnover)
- Sell more Service Agreements (which are highly profitable).
I love plumbing Service Agreements in particular because they have nearly no cost to the contractor. I do the inspection while I'm on the call anyway (that's how you discover their hidden needs and get more add-on sales). They help with the techs' billable hour efficiency, help them reach bonus level and keep them happy, so they stay with your company.
Again, I'll ask, what's wrong with deciding what you'd need for a task as an "add-on," then dividing by .85 to come up with the "non-agreement customer" price for the same task anyway?
One word of warning. If you go with my recommendation of using "four-column pricing," and allow your techs to first let them buy an agreement, then take the Service Agreement discount, don't allow customers to pay the Service Agreement rate for anything without buying the Service Agreement, "to save a sale." In seventeen years, I have never given anyone the Service Agreement price on anything without them first buying the Service Agreement.
For more information on how to compute your four prices, click here: How to Set Your Flat-Rate Price Book up with Four Prices.
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.
An alternative to having me run calls with your techs is to send them to my four-day 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 seven times and I've had a good number of people attend more than once.