Pushing The Envelope

Grumpy

Since coming here, and other forums, and attending a few semianrs and really focusing on educating myself and my customers I have been slowly raising my prices. My base pricing has raised about 3% per quarter for the past 2 years, in addition to any material increases. I didn't realize how low we really were.

In this period of time I discovered that the envelope is at the edge of the table right now. If I push the envelope any further it may fall off.

What that means is this. I am currently at the maximum I can charge on a regular basis and still maintain a 30% closing ratio. Ratio means nothing, profit is everything blah blah blah...

The point behind this post is this: I encourage all of you to push your envelope to the edge of the table, infact push it off the table. After you realized your prices are outrageous lower them just a wee bit to bring you back on the table and you too will know what your market will bear.

We are all professionals, (Well most of us ) and we should be treated as such, and paid as such.

Don Benham

I was told that you can't price yourself out of THE market, just out of A market. I've found this to be true. After raising my prices to a livable wage, I no longer need to do cheap work. I work for a better educated, more quality oriented client-base.

Good advice Grumpy.

Don

pgriz

There are two major ways of pricing: price by cost, or price by value. Pricing by cost anchors the price to the cost of your supplying the goods/service with a percentage for overhead, profit. That’s the way most contractors do it. When asked to defend a price, the contractors talks about his/her cost of doing business. Ultimately, no matter what your percentage markup or multiplier, it’s still Cost Plus.



The other method is based on perceived value. In this method, the cost of marketing forms a significant part of the cost of the product/service, but the pricing is NOT directly linked to the costs. “Premium” bottled water, perfume, diamonds, premium legal service, “ethical” drugs, art, high-end entertainment and many luxury goods are priced this way (not to mention illegal drugs, black-market guns, etc., but they don’t have heavy “marketing” costs).



To play in the latter arena, you’ve got to really understand your customer, and be able to satisfy the “want” better than anyone else, and in a way that no-one else can equal (in the mind of the prospective buyer). I have seen some contractors in the renovation business become so identified with “high quality” that their prospective customers will pay whatever it takes to get them to do the work. The rest of us slog along, trying to make a living, because we supply a commodity service and not an emotional fulfillment.



If you want to move from selling a commodity (cost-plus) to selling a valued service, you have to change the way you market your product. In this context, “marketing” is not just your advertising, but everything that impacts your potential customer’s experience with you and your company. Unfortunately, most of us do not take the time to really understand our potential customers, nor do we spend much time making sure the customer experience is structured to give the “high-value” emotional boost. And therefore, most of us stay “commodity-priced”.



Grumpy, as you know, we specialize in a high-end roofing product. Our prices end up being anywhere from 3 times to as much as 10 times more expensive than conventional roofing. But much of our business is referral – so the customers that paid that amount of money were happy enough to get others involved. We don’t try to sell to everyone. We focus on a specific profile of customer and spend a LOT of time with them. We don’t use high-pressure sales – that defeats the purpose of “recruiting” customers. It may take several months for us to get from the initial contact stage to the contract-signing, but at the end of the process, there is an attractive and profitable job for us, and a dream-come-true for our customer.



You know, Grumpy, the way you handle your customers is much closer to the “high-end” model, and I think you may be surprised at how much more you can increase your prices without seeing a reduction in total revenues. But you need to really focus on getting the right customers to be able to make the prices stick.

Grumpy

Paul, your right, I may be able to further increase my pricing. I should have been more specific. Using my current sales tactics and targeting my current market, I can not further raise my prices without lowering my closing ratio drastically.

My options? Find another market willing to pay more OR change my sales strategy.

My current target market is upper middle class, homes from 500k-2mil. My strategy is currently low pressure, high quality, excellent service (hand holding).

pgriz

I think you will change your target market AND your sales strategy. You may also want to consider using a different product which will allow you to stand out from the rest of the competition. As for your strategy, it's the same one we use, and we know it works well.

Grumpy

You and I talked about possibly partnering to sell your product in my area. I was eager for awhile until I started droping hints with home owners: "Have you given any thought to metal shingles?" The response was overwhelming negative I did a keyword lookup to see how many people in the chicago and IL areas key in "metal roof" and various combinations of metal roofing but it wasn't enough to keep us above water.

I'm currently satisfied right now with what I am charging. I'm making a living, and for now that's the best that I can ask.

pgriz

Sorry Grumpy, I wasn't hinting about the shingles, as I already got a sense that if you saw an opportunity with this, you'd move on it. My comment was more general, in that if you're trying to offer a high-end solution that in the consumer's mind only YOU can supply, then having a unique (or uncommon) product or approach helps. Dave (in another forum) uses only women in his roofing crew and that's definitely different. Another contractor I know who specializes in bathroom/kitchen remodels, offers his customers a "free" stay in a luxury hotel (complete with meals, spa, etc) while his crew tears out and replaces their bathroom or kitchen, so that they won't be inconvenienced. He gets an absolutely ridiculous amount of money, but his customers just adore him.

Grumpy

I can see a unique item like yours. What I am having a hard time imagining is why people would pay a premium to stay in a hotel when they can just arrange the reservations themselves in one phone call and save a ton of cash? That makes no sense to me... then again if it works, why not?!

I've been thinking of offering one free visit from a landscaper after our roofers are done, but then I realized 90% of my customers already have landscapers so ther'd be no benefit to them really.

pgriz

It works because having someone else fuss over you is a lot more pleasant than if you do it yourself, even if it costs the same. At a certain point, once you have enough of it, money is just... another commodity. However, no-one's ego is so smooth that it can't use some more polishing.