I get really amazed when I talk to plumbers about their pricing. “How did you come up with that price?” I ask. “Well, we called up some competitors to see what they are charging” they say. “Oh, are they making money at that price?” I ask. “I guess they are. They have been around for a while,” they say. You know, it really doesn’t matter what your overhead costs are, does it?
“When is the last time you raised your prices?” I ask. “I guess it’s been a couple of years,” they say. “Why haven’t you had a price increase?” I ask. “Oh, our customers just would not pay if we go up,” they say. Then my head explodes…..
For some reason, plumbers think their customers know everything about their business – you know, what it cost to purchase a van, and auto insurance, and fill that van with repair materials, and pay general liability insurance, and train that technician, and provide benefits, and additional education every year, and on and on. Yea, the customer is so smart they know what you should be charging. You know, if you see the same customer every week, they may become knowledgeable of your pricing. But, if I go through your records I’ll bet I will not find 5% of your customers that call you more than once every couple of years.
Your pricing should be based on your overhead costs, how much profit you want to make and the amount of value delivered. Who cares what your competitors are charging. Many of them are going broke and just don’t know it. How we determine what to charge is a topic all its own.
My question today is how do you know it is time for a price increase? If you are monitoring your overhead costs you will know when profit starts slipping. But, that’s a lot of work! There is a much easier way.
One of the benchmarks you should be monitoring weekly, monthly, and quarterly is technician close rate. The close rate is easy to calculate. Divide the total number of jobs where you worked for money, by the total number of jobs dispatched. If you performed 75 jobs, but were sent 100 jobs, your close rate would be 75%. The target we are trying to attain is 93%. The close rate tells us many things. Who needs additional training communicating with the customer? Who our super techs are. Who to feed jobs to when times are slow to assure getting the sale. And, when it’s time to raise prices. As a group, once your shop starts exceeding 93% close rate on a consistent basis, it is time to raise prices.
With a normal price increase, your close rate should drop to around 85%. If you raise your price are you going to lose a few jobs? Yes you are…but only a few. The net result is your sales and profit will increase. If you are paying your technicians on an incentive basis, they will get a pay increase too. 85% of your customers will continue to purchase from you. They understand the valve you deliver and will continue to want your excellent service. So, raise your labor 10 to 15% so you can continue to be in business as one of the best.
If your business is not where you think it should be, give me a call for a free consultation. The Plumbers Coach™ Detailed personalized business coaching and training for plumbing contractors. Get more information at www.theplumberscoach.com, like us on Facebook.com/theplumberscoach, on Twitter @T_PlumbersCoach, and on LinkedIn at KeithGlass15.