Is your salesperson pricing right?

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“The sales guy screwed up, and we really ate it on that job.”

Maybe. Maybe not. In my view of successful, scaleable HVAC, solar, and home performance companies, the sales person is responsible for putting together an accurate price estimate and proposal. (Some companies use separate estimators, and the sales people sell. I think this is wastefully redundant. And it’s often less effective sales wise for reasons surrounding building value, trust, and credibility.)

Nuts and Widgets and Labor and Permits – Building Prices from Scratch

Some of you are building each project from scratch. This is a huge time suck for the sales person, who not only needs to know all the ins and out of the installation project, including all materials and equipment needed and all the labor hours need for each portion of the project, any relevant subcontracting costs, and other costs from permits to to drive times. Once they’ve got accurate costs, they have also to roll all of these up, and then apply the right markup to get the price for the customer.

This can work. When starting out, that is what many owners did, building the jobs themselves. But it takes a lot of time, and the more time it takes, and the more complicated it is, the more likely a sales person with make a mistake or miss something. This is particularly true since you are likely to have a very hard time find someone who know the installation process so intimately that they can be accurate and who is a decent sales person who can demonstrate value to a customer. It also has the unfortunate impact of baking all of the material takeoffs and cost generation for every proposal–not just the ones you sell–into your overhead, making every project more expensive.

There’s a Better Way – Unit Pricing

If you want to scale, you need to do be able to generate pricing efficiently and accurately (including the right margins and profits). And use people’s expertise applied when it makes the most sense. For most projects, this means salespeople should be using unit pricing. Their job is to follow the price book (or sheet or spreadsheet or tablet-based pricing tool–I’m using these interchangeably here). Attic-sealing and insulating a flat attic to R-60 is $X.XX/square foot. If access is “difficult” (and YOU need to define the parameters of “difficult”!!) the price is increased by YY%.  Recessed lighting that needs treating (and you define what that standard treatment is) are $ZZ.ZZ per fixture. Installing an 18,000 BTU, 21-seer mini- split, $AAAA.AA for the base unit. New pad needed? Second story install? All of these have pricing associated.

It is the salesperson’s job, to specify the measures accurately and get the units right. You can even make them responsible for simple multiplication and addition! (Although the electronic tools can speed this up and reduce errors.)

It is, however, management’s job, working with both the production and sales teams, to get the unit pricing right! If the salesperson specs the wrong solution, or gets the units wrong, that’s her error. However, if the unit pricing is off, and that’s the reason the project was bid too low, that’s on the owner/manager, and she needs to correct the pricing book. This should rely on the salesperson’s judgement–the process is they follow the book!

(As an aside, if something is not in the pricing book, I suggest a policy that the salesperson not be allowed to estimate the pricing on their own–in these cases, which should be infrequent for most residential HVAC, home performance, and solar companies–pricing needs sign off from production and management before it is presented to the customer.)

Unit pricing done well can not only be very accurate, it can be done more more quickly, twice as fast, to perhaps ten times as fast! The salesperson doesn’t have to spend as much time crunching numbers with their calculator and No. 2 pencil. They don’t spend time on the phone talking to suppliers. They do spend more time engaging and following up with customers–and turning around quotes more quickly while customers still remember why the duct system needs to be completely replaced. 2-3 weeks turnaround is no longer than standard!

If you’re not using unit pricing, it’s time to start moving in that direction!

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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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