Price buying consumers always think your price is high
As I entered the choir practice room at church, I noticed one of the other choir members had arrived earlier than I did. We exchanged greetings, and she asked if she could ask me a question. “Of course,” I responded. This lady is a teacher (retired I think). She told me that her regular plumber (a man in his 80s, who charged her only $20 per hour) was no longer available. Imagine that! She went on to explain when she recently needed the services of a plumber she received the name of another county plumber from a neighbor. She apologized for not calling my plumbing business, but, said she didn’t remember the name of my business.
“That’s OK,” I assured her. “But, what’s your question?” I asked.
She told me the other plumber had replaced the automatic fluid fill valve, tank lever, water shutoff and supply tube of her toilet for $325, and he wouldn’t give her a breakdown of the bill when she asked. She wanted me to tell her if the price was too high. I wondered to myself why she didn’t ask if I thought the price was too low. I knew the answer. Price buying consumers never think the price is too low.
As other choir members entered the room and conversation, I started to explain each contractor has certain variable and fixed operational costs which are unique to his/her business. Those expenses, blended with that contractor’s individual business management procedures, determine pricing policy. The differences involved are why prices charged by different companies for similar services vary vastly.
Another choir member added, “That’s why the prices are all over the place.”
That’s one reason “prices are all over the place.” The other is the method of guessing at prices, or charging less than other contractors who guessed their prices.
I asked the woman who had the work done if she was given the price before the work commenced or if she was paying based on time and material expended. She told me she was given the price before authorizing the work to be performed at that quoted price.
She looked at me in astonishment when I told her she was not entitled to a breakdown. I pointed to the sweater she was wearing. I asked her if she requested a breakdown of the cost of the fabric, buttons and labor used before she decided to purchase the sweater. With that I saw the glimmer of understanding in her eyes.
I then went on to explain if she was paying based on time and material used she would be entitled to a breakdown because those variables were the primary determining factors of her ending bill which would not be calculated until the task was completed. But, when the price is quoted before service commencement, and a contract between parties is agreed upon, the contractor, like the sweater vendor, need only post the total price.
She then asked if I knew the contractor. I said I did. She asked me if I thought he was good. My response was apropos for people preparing to enter church and sing praises.
I asked her, “Do you really want me to judge someone else?”
I closed the subject with an old adage, “You get what you pay for.”
If we want good teachers we have to pay them properly. Same goes for plumbers.
Let’s look at the $325 price she paid. Was it too much, not enough or just right? In my opinion, minimal cost to legitimate PHC service contractors for one tech hour, if all tech hours are sold all the time, is between $100 and $250. The vastness of that range is due to many variable cost expenditures of different geographic areas.
The minimum contractor cost range for one tech hour in the area in which this job was done is $150 to $250. The angle stop, supply tube, fill valve, tank lever, solder, acetylene, flux, grit cloth, sealant etc. minimally cost the contractor about $40.
The time to perform this service inclusive of travel; conversation with client; paperwork; set up and cleanup of work area; the task; testing for leaks and operation; and payment is on average 2.25 hours. Sometimes it might be less while in other instances more. But, contract pricing (upfront prices) should be based on averages.
Multiplying the minimum hourly tech cost to this contractor of $150 by 2.25 hours makes the labor/overhead cost to him for this job $337.50. After adding the $40 cost of material to his labor/overhead cost he minimally spent $377.50 to bring in $325. In this instance, his price was too low.
If his cost per tech was at the higher $250/hour rate, his expenditure would have been $602.50. He would then have shortchanged his business by $277.50.
It should be noted that if all tech hours are not sold all the time, and only 70 percentof available tech hours are sold, that minimum U.S. cost range to contractors of $100 to $250 per tech hour becomes $142.86 to $357.14 per hour.
And, that’s why it’s so important to know your true cost and the relationship of your cost to your expense reality before quoting your selling prices. Price buying consumers always think the price is high. Your responsibility, as a PHC contractor, is to deliver excellence to consumers and set your prices so you have an opportunity to recover your costs and earn a profit above those costs.
Losing money on the jobs you do because you didn’t properly arrive at your selling price is foolish. The teacher probably still thinks the $325 price was high because she has grown accustomed to a plumber charging her $20 per hour. So, she’s not happy. The plumber will probably never realize the real reason he’s unhappy, because he doesn’t know his true operational cost and that his prices are too low.
If you would like to gain your contractor profit advantage and be happy, give me a call. I’ll show you the way. As I was writing this article, a contractor who has been reading my column for a long time, told me he finally worked up the courage to call for my assistance. That’s not the first time I’ve heard that statement. There’s nothing to fear other than the prospect of continuing to sell your services at levels which will not allow you to get where you want to go.
I’m a straight shooter who talks to you like a buddy. I can’t make decisions for you. But, I can offer ideas that can help you make wise decisions. If you sell your services at or below your true cost and refuse to change, you will not open your mind to the light of knowledge. Instead, you will keep yourself in the darkness which fertilizes the bliss of ignorance.
Richard P. DiToma has been involved in the PHC industry since 1970. He 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 email@example.com; mail to R & G Profit-Ability, Inc. P.O. Box 282, West Nyack, N.Y. 10994.