By: Paul DelFino
One of the most popular parts of the monthly HMI Discovery & Training Program is the two sections that involve pricing. Philosophy, methodology, and formulas are on that subject are delivered in the estimating and marketing components of the program. Years of observation at the program has allowed me to conclude that everyone is alert when money is discussed.
WHY ARE YOU DOING THIS: For years I have asked the question at the seminar – “Why Did You Come Here?” Invariably it takes a few politically correct respondents saying that “they came to learn how to raise and level concrete” before some honest, pragmatic soul says: “to learn to make money.” So it makes sense that the estimating and pricing part of the program would be important.
HMI presents and offers a business opportunity. Unlike a franchise, the customers who buy our equipment and materials own and run their own business and can make every decision based on their business plan, philosophy and market. What HMI presents in the seminar are Best Practices it has found that work.
WHERE DOES ONE BEGIN: When starting a new service business how do you even begin to set your price? The answer is multifaceted but not complex. The simplistic response is that price should factor in:
- Cost to end customers of competitive options
- The owners profit margin goal
- The business plan growth trajectory which factors the inverse dynamic of: speed of new customer acquisition and profit per job/hour.
- Perceived Value
At HMI we pound home the fact that in reality you competitors set your price. If you assume that your price is some percentage of the cost of new replacement concrete, then flat work contractors (also pavers, bricklayers, paving and gravel contractors as competitive options) set the range of price the market will allow. Where you price in that range and how aggressively you want to grow vs. make a large profit on every job is why pricing is the clutch of your business.
FEATHERING YOUR CLUTCH: HMI suggests that new concrete raising and leveling contractors initially set their pricing at one half the cost of replacement after they have completed a thorough study of competitive offerings. This approach allows for a marketing theme of “one half the cost of replacement” and if the margins permit gives them an opportunity to frequently test the elasticity of the demand by continuously adjusting pricing up and down to find the magical point of maximum profit margin and controlled growth. Great race drivers use the clutch and the best businesspeople do as well.
DISCIPLINE & CONSISTENCY IN ALL THINGS: Think about those terms and how important they are in each business and personal relationship you have. Do you value: dependable, logical, consistent, predictable relationships? Most do, and how you present you’re pricing has to appear logical to your prospects. That is why HMI trains on a Price per Square Foot presentation. Deriving that price per square foot is what our training is all about and includes cost of material, equipment, time and other overhead. But – whatever approach you use the customer should be able to understand it and relate to it. The other value of a disciplined pricing chart is the ease with which you can change it. When it is time to push in that clutch or let it all the way out your systems must make it easy for everyone in your company to react quickly.
EXCEPTIONS TO EVERY RULE: I have been quoted at the seminar that the optimal pricing philosophy is “perceived value!” There are market research firms who charge millions of dollars to help large companies find out what a product and service is worth to a customer type. Your clutch can be your research! If you do not test it you could be leaving profit behind or worse – watch your company erode beyond time to react.
Although we at HMI profess a computable arithmetic foundation to pricing there are exceptions. Some jobs are unique. In some cases the time, mess, noise of concrete replacement is not an option. When you identify scenarios where traditional options are not a solution – price accordingly. This is not gouging – it is business.
BACK TO THE BEGINNING: You are in or are considering entering the concrete raising and leveling business to MAKE MONEY. Your pricing philosophy and methodology will have a large impact on your reaching and maximizing that goal. Do not be afraid to change your pricing! Use your clutch!
Paul DelFino is a principal of the consulting firm Opportunity Inc. For nearly two decades he has assisted entrepreneurs in growing their businesses, responding to economic downturns and merger and acquisition activity. He has consulted with HMI and RaiseRite for over a decade. His publications include “Avoiding Skewed Entrepreneurial Strategies” available from all on line booksellers.