As a contractor, pricing your services is one of the most important keys to business survival…and one of the most difficult to master. Charge too little and your business won’t make it; charge too much and you risk losing business to competitors. We’ve all been there, and we feel your pain.Usually, the reasoning behind what a contractor charges is obscured, and consumers often have an *ahem* imperfect understanding of the factors that impact pricing. But let’s be frank: many contractors also have an incomplete and imperfect understanding of how to price their work. (If this describes you, we hope you’ll join us for Sashco’s Zero Failures Business Focus training, coming at you this fall.)
Once you have accurately calculated the real cost of being in business and what you have to charge to thrive and grow, you’re still challenged with how to communicate that to the customer. As one successful contractor tells his clients, “The price is more than I want to charge and more than you want to pay.” For the contractor who understands and can articulate the components of his pricing strategy, this is an opportunity to set yourself apart from those who either guess at what to charge or base their price on what they think they can get. When you can articulate it, we call this pricing transparency.
Pricing transparency occurs when all involved parties know the pricing behind the products and services being bought and sold.
For buyers, price transparency is useful because it allows them to compare pricing options and to see a clear pricing standard. Historically, a great deal of secrecy has surrounded what contractors charge. But recent developments in technology and communications (that’s the interwebs and social media, ya'll) have changed customers expectations. Customers now research information about prices prior to purchasing. Maintaining a log home is a potentially expensive endeavor and there is little published as to what these services cost. This creates the opportunity for contractors to educate buyers about pricing while allowing them to feel more confident about the value.
Several factors are involved in price transparency beyond the basic disclosure of pricing. This includes knowledge about the availability of your services, as this can influence value, and the location of a project, which can also impact the overall price. Buyers appreciate the sense that they can compare options offered by several contractors and choose the best overall value. This could include price, location, and availability, among other factors. Likewise, contractors can keep track of the market, stay aware of the going rate, and see how their competitors are pricing their services. This prevents radical undercutting of prices and keeps contractors honest with their customers and each other.
When price transparency is working well, it benefits both the contractor and the buyer. It protects people from unfair or questionable pricing and helps buyers understand how pricing works. In other words, they appreciate the real value of the things and services they buy. And, treating the customer interaction as relational rather than transactional leads to long-term future business.
Wayne Bell operates a log home services contracting business that he formed in 1993. His crews serve a multi-state region throughout the Midwest and Southern US from their base located in Ohio. He has completed the Executive Program for Growing Companies at Stanford University Graduate School of Business and has served as an educator in both the public and private sectors, including experience as a college-level business instructor. His unique observations about the log home services business are gathered from both personal experience and interviews with other entrepreneurial business owners, and his insights provide business owners the opportunity to think a bit more productively, imagine more creatively, plan more rationally, and see their business from a fresh point of view.
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This month's training tip comes directly from a question we received recently.