Matt Michel: 9 professional plumbing pricing practices
The single biggest problem plumbing contractors face is also the easiest to fix. It is poor pricing practices.
Here are nine professional plumbing pricing practices you can use to boost your business.
Use flat-rate pricing
It is difficult to find a large, professionally run plumbing business that does not deploy flat-rate pricing. There are many reasons to utilize flat-rate pricing, but the most important is nine out of 10 consumers prefer it.
Consumers hate the uncertainty of time and materials pricing where the final price is a surprise. This is why they try to get your plumbers to give them a ballpark price. Guess what? When you give a ballpark, you are all but flat rating, only it is a flat-rate swag.
In focus groups, consumers have described flat-rate pricing as fair pricing and a better value. The companies that offer flat-rate prices are seen as more honest and lower priced. Any negatives plumbers perceive come from within the trade, not the public.
In addition to more positive consumer perception, when a company switches to flat-rate pricing, complaints about how long a plumber was on the job are immediately eliminated. Because the price is presented before work begins, most price complaints disappear.
Since flat rate bundles material pricing and labor, neither gets questioned. Pricing is also simplified, since math mistakes are reduced and pricing games are unnecessary. You may still charge a fee to show up at the customer’s house, but it is no longer needed to subsidize your labor pricing.
The No. 1 problem affecting the plumbing trade is inadequate pricing. Too many plumbers fail to charge enough. If you do not charge enough, you are effectively subsidizing your customers. Do they need your subsidy?
Proper pricing is the basic platform that drives everything else in a retail plumbing company. When you price right, you can afford to pay well, offer good benefits, invest in new trucks, pay for training, invest in marketing, and reward the company investors for risking their capital in the business. If you do not know how to calculate your service pricing, the Service Roundtable has a free pricing calculator you can download from the “Free Stuff” tab on the website.
Charge maintenance agreement customers less
If you offer a maintenance program (and you should), your maintenance customers will be your most loyal and profitable customers. They are repeat customers, so it costs less to attract and serve them.
They deserve to pay less. However, you deserve your targeted net profit, so how do you charge your maintenance customers less while still hitting your numbers? Easy. Set the pricing for your maintenance customers at your targeting net profit and charge everyone else more, which becomes your “standard” price.
Charge a subscription
It seems every company is attempting to move to a subscription model today. This is because consumers would rather pay a low monthly fee that they can forget about than a larger annual number. In keeping with the national trend, contractors are beginning to switch to a subscription pricing model for maintenance agreements.
The subscription model presents all kinds of ways you can price innovatively to bind your customers to you. For example, credit six months to a year of the subscription payments to any repairs as long as the customer remains maintenance program member in good standing. This makes it harder to quit since the customer must walk away from credit toward repairs.
Rename repair parts
Everyone in the service industry has experienced a customer conducting an internet search for a repair part and going ballistic upon discovering the price. Make it harder by renaming parts. For example, an angle stop becomes and emergency shutoff valve. Just make sure you keep a good cross reference for your new plumbers and warehouse manager.
Do not charge overtime
If you correctly allocate all of your overhead against standard billable hours, there is none left to allocate against overhead for overtime work. This makes overtime work extremely profitable. In fact, it is likely you can charge your regular prices for overtime, pay your plumbers time and a half, and still make more money. This is because the overhead is usually more than the 50% markup for overtime pay. In addition, overtime work involves little, if any, unapplied time (basically, just the travel time).
Be strategic with response charges
If you are flat rate and have your overhead fully covered in your pricing, your response charge (i.e., trip charge, truck charge, travel charge, diagnostic fee, etc.) is unnecessary for profit, but might be beneficial from a sales and marketing perspective.
For example, if you have price shoppers in your area, you can have the response charge apply to the repair. If you want to encourage maintenance agreement subscriptions, you can waive the response charge for maintenance agreement customers. If you want to make lots of discount offers, mail out coupons approximately the same as the response charge.
If your price books are not digital, you should print them every six months or sooner or you end up missing your targeted profit due to inflation. In the interim, consider adding surcharges from time to time to cover expenses like gasoline price spikes. Eliminate the surcharges the next time you print books.
Flex your prices
Ultimately, pricing should be flexed up and down. When a task is particularly distasteful, complex, or difficult for a DIY approach, charge a little more. Then, lower prices on tasks that are simple and easy. Market the reduced prices. This is retail pricing, where a few items are priced very competitive and marketed heavily, but others carry greater profits.