Service Business Secrets: Parts Pricing
Here at HindSite, it's not just about our service management software... it's about helping you succeed. In many ways, our Profs are in a great position to provide advice on business operations as well as software implementation, just because they speak to so many contractors on a regular basis.
Here's something we've learned over the years: You are pricing your parts too low. Our standard? "Price the high side of reasonable," according to David Crary, our President.
Now, what that price is depends on your market...
- What did you pay for it?
- What will it cost you in labor and other material to install that part?
- What's your overall margin you need to hit on service or maintenance work?
Bids are different, since it's all about hitting your time budget. But otherwise, what should you be priced at? Talk to the pros, people like Jim Huston in the irrigation and landscaping industry, or Ruth King in the HVAC service industry.
Now, why should you raise prices?
When was the last time someone called miunyou and asked, "How much do you charge for a 4" PVC union?" No, instead they call and ask "How much do you charge to come repair my lines?" You have a great opportunity to directly increase your bottom line without much fuss. Take it!
Along with that, we've heard from customers who haven't raised their parts prices for years, well before the recession was putting a price crunch down on everyone. Inflation, raw material costs, shipping cost... they've all gone up, and you need to increase your part prices to at least maintain your own margins.
If you give itemized invoices to your customers, you've probably heard this one: "Hey! You charged me $50 for a part I can get at the hardware store for $15!" Your response, in as patient and professional a tone you can muster, should be "Then I invite you to buy it there and install it yourself."
First off, you are selling your expertise in the form of a professional service. You're not just doing jack-of-all-trades-master-of-none work on the weekend. Charge what you are worth! Secondly, do you really want the kind of customer that will nickel and dime you on every job? There are times, sure, you need every job out there... but more and more, there are times when you don't. Find the customers that appreciate solid, professional, dependable service, and are willing to pay for it.
A Quick Story
Every once in a while our guys go paintballing. At one outing, Steve was wearing a HindSite hat. A "stranger" walks up to Steve, asks his name, and then gives him a bear hug. While Steve sputters, the "stranger" (who is actually a customer) proceeds to say "You made me $20,000 last year!"
While our software helped him transform his business, a key part of that year's revenue was parts pricing. When he started with HindSite the previous year, he was charging .25¢ for some parts, and less for others! Steve advised him to up his prices to at least $1.00 each. Combining that with actually billing for all his materials (using our parts tracking), he had his best year ever.
Every service industry is obsessed with labor pricing, as they should be. Pricing yourself correctly is how you make money, and should be taken very seriously. Just don't overlook those little parts: price them the "high side of reasonable", and make sure you bill for them. It'll make a difference.