By Tom Grandy, Founder
How did you determine the price of your last job? Was it based on what others sell similar equipment for or was it based on your actual costs of doing business? Do you discount jobs? If so, why? Did the customer tell you the job was yours at “X” price or did you simply discount the job because you felt like you could, should, or needed to, to close the deal?
Knowing what you need to charge for a retrofit or new installation job changes everything. Going through the detailed process of setting hourly rates (from a cash flow perspective) provides the owner with the necessary knowledge to sell a job. Knowing the price quoted will generate a specific net profit is powerful. Knowing the breakeven price is another great tool when it comes to sales.
Below is a report from the Job Pricing Calculator of our newly rewritten Planning For Profit Software™ program. Note, it shows the suggested retail price along with the dollar and percentage of profit, that price will create. The below example tells us the price needs to be $4,207.00 based our on desired hourly rate for installation of $52/hour. Note, it also tells us the breakeven price of $3,559.64. That price covers all business expense, including salaries. It simply does not generate any “net” profit.
I don’t know about you but knowing those two numbers completely changes my countenance when I am talking to a potential customer. I am far less likely to discount if I know what price I need to charge to hit a predetermined net profit. If I find myself in a position when I need to discount, I at least know how low I can go and still cover my costs.
As a reminder, never just discount the price of the job. That is why the customer needs to be presented three price options Best, Better and Good. If the price goes down so does the offering.
Why show the Best price first? Last year I bought a new car. There were three cars my wife and I were considering. One was a Honda; another was Toyota and the final one was a Nissan. The same dealership handled all three brands. We explained to the salesperson the three options we were considering. He first had us drive the Toyota Highlander. It just happened to be the most expensive of the three. We went for a test drive. Wow, it was amazing. I had never driven a vehicle with electric steering before, but the difference was amazing as were many other features. Test driving the other two brands (Better and Good) literally paled in comparison. There was no question. If we were to purchase a new car it was going to be the Highlander.
The confidence provided by knowing your “real” numbers is hard to describe until you know them. Knowing what your real net profit will be at each price level and knowing your breakeven price makes all the difference in the world when you are presenting the customer with the quote. Secondly, providing Best, Better and Good options accomplish the same purpose as discounting…without losing money.
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