Does your pricing work?

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what pricingLast week I worked with four different contractors and people in two different programs and discussed pricing.

Oh my.

Contractors, can you make sufficient margin selling air-sealing insulation at your current pricing? (Or selling air-conditioning? or any other service you provide? Do you know?) If you can’t, then you’ve got a few choices.

The first is what too many contractors do. They keep selling at the pricing that doesn’t deliver margins, and they put their entire business at risk. Sometimes they go out of business.

Second, you could raise prices so that you can actually make fair margins and a fair profit. “My sales guys are gonna freak. This is much more than our competitors charge.””They won’t sell this, because they don’t believe it should cost that much.” Yes, your sales force might have to do a better job building value if your prices are higher. If they don’t, consumers will often just go with the lower price. If your sales team doesn’t understand the value, and doesn’t believe in it, they’ll have a hard time selling it. Work through some cost examples with them so they understand. Work with them to insulate (or fix the ducts or….whatever service you’re discussing) their own homes. Help them understand the value. And that a “fair price” includes both value for the customer, and a fair profit for the hard work you do and the risk you take (and enough for their commissions!).

Third, you can focus on the cost side, so that you can eliminate waste and be more profitable, whatever your pricing.

Fourth, you could to decide to leave that part of the business (rather than waiting to fail). That can be a smart move. If you can’t sell at a price that means you’re not losing money on every job, either because you can’t figure it out or because the market just won’t bear it, this might not be the right place to be. Better to spot that early and move on than to lose your home with a business that doesn’t work.

I see a lot of contractors doing the first thing. Scary. I hear people complaining and deciding the fourth route is the only one open. Both are choices. Unfortunately, neither is the path to fixing more homes.

But I actually do see others paying attention to pricing, setting pricing that works, working the cost side of the equation without sacrificing quality, and learning how to build value. For them, the business works, and they give me hope.

Choose your path.

(An aside for you program folks, read this: “When Home Performance programs talk pricing, they often hurt the market”. Often those prices you complain about are the only ones that work. Don’t drive good contractors away with bad prices.)

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About the Author:

Mike Rogers is the President of OmStout Consulting. A nationally recognized expert in residential energy-efficiency, he works with contractors and programs to scale sustainable market approaches to improving homes. More on Google+

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