Step 6 – Pricing Strategies
Yesterday I saw an infomercial on TV for Carol Burnett’s old variety shows. I thought this would be a great gift for my wife. So, I call up and find out that the DVD for $9.95 (plus s/h) only includes two episodes. Now, I am far from being a cheapskate; quite the contrary. But I was expecting more for my money. When I called, they revealed that I could get 17 episodes for $150.
Their pricing strategy just didn’t work. They had a great product. They had a great message. They had everything they needed except, to me, the pricing strategy. They may have sold tons of them, and it is possible that I just wasn’t their target audience. Time will tell.
I wonder if your pricing strategy might be a sticking point in your marketing plan. There are three specific things you need to look at:
- Your Pricing Amount
- Your Pricing Method
- Your Pricing System
Your Pricing Amount
How do you know if you are charging too much or too little? First, you want to determine how much profit you need/want from your company. This is the amount of money you will take out of the business, plus any extra that you need to keep in there. Then, calculate your overhead or indirect costs. These are the expenses that don’t change regardless of how much business you do. This would include your phone bill, rent if any, truck payment, all the bills that will be there if you do one dollar or a million dollars. Next, figure out your cost of sale, or your direct costs. Figure out the amount/percentage of labor (if any), gasoline, materials, supplies, etc. Anything that is “consumed” or a direct cost of doing jobs.
Now, add your current marketing costs. Add those four numbers up and you have your sales goal. Is it higher or lower than what you have been doing? Now, you can begin to work on the “how much.” Do you need to raise your price? Do you need to make your job tickets bigger by offering more services?
A great tool to figure this out is Ellen Rohr’s book, “How Much Should I Charge?” Ellen is one of my most highly regarded consultants. You can get her book at www.barebonesbiz.com. In this book, she has you figure out your billable hours, a very important component in figuring out “how much.”
A word of caution: never set your prices based on the “going rate” in your area. You will be surprised how much people will pay you if you know how to communicate the value that is associated with your service, and if you know how to deliver it.
Your Pricing Method
Your pricing method is how you measure for your pricing. Is it based on the square foot? Is it based on the room? Your pricing method should be based on something that can be easily measured by your client. In other words, they need to be able to clearly see that you are not making up the price based on what you feel like you can get from them.
A huge mistake I see a lot of cleaners make is that they adjust their prices based on the “soiling” level. In other words, if it is heavily soiled, the clients pays more. If it is not, they pay less.
The reason this is a big mistake is because I don’t believe your customer will truly agree in their heart that their carpet is more heavily soiled one time more than the next, even if they have 17 cats! If you have been around carpet cleaning very long, you have surely been in someone’s home who swears that their animal never goes on the carpet. I have been around long enough to see the dog urinate on the carpet right in front of me, even as the customer was denying it!
Here’s what you do instead. If you insist on charging based on soiling level, identify and measure what you are charging for. For example: “If you have red stains, urine stains, or filtration soiling, you would be at X Rate or X Package…” Now you’re not offending them by calling it “heavy soil.”
Finally, your pricing method should be easy to follow. Your client should be able to see how many square feet they are paying for, or how many rooms, and how those are figured. If you do packages, have it clearly defined what is in the package and how it is measured. The idea here is that they don’t think you are just making up the price. You can only do that if you are the highest paid consultant who is booked out for weeks. If you are in that much demand, you get to call all the shots.
Your Pricing System
Finally, you need a system. What do I mean by a system? You need to have a structured way to quote the price, a structured way of measuring, and a structured way of presenting the price. You especially need this if you have technicians. If your technicians can’t go in and price a job without calling you, you have made yourself their slave, and that is not what you are in business for. They should only have to call you if the client is asking for something that is not covered in your system.
Do you have scripts? Do you have written procedures on overcoming price objections? Are you tracking your closing ratios? Calculating your cost of doing business, settling on a pricing method and building a system around it will keep you from quoting a price based on fear of losing a job.
There is much more to write about this whole pricing issue, but as it relates to our marketing plan, suffice it to say that your pricing strategy is a vital component. After all, if you do a great job attracting the right clients, but turn them off and create distrust with your pricing, you wasted a lot of time and money and cost yourself a lot of repeat and referral business.
By the way, if you are getting a lot of “no’s” on your pricing, it is not because you are charging too much. Here are several possibilities why this is happening:
- You haven’t attracted the right kind of customer. How are you advertising or marketing your business?
- You haven’t communicated the level of perceived value.
- You don’t believe in your price and they can smell it.
Until next time, my passion is your success!