To illustrate, 40 years ago, flat rate pricing did change the way the market worked. But it also made pricing inflexible. All flat-rate pricing means is upfront pricing – upfront, no surprises, sell the job, get the check; that’s what it was all about.
Making money is about something completely different. You must understand what things cost and what will the market bear? Once you know that, you can provide customers with options.
Think of it this way: there aren’t two pans for the scale of justice; there are three – a tri-level scale. Those three pans are:
- Our cost, based on calculations like that formula I gave you above.
- What will the market bear? How can you justify your low cost with a market that might bear an incredibly high price?
- Value. By adding value, you can build options and offer your customers choices.
We used a third-party research company to do a deep dive into the profitability of options, and the results were unanimous: 80% of your customers will choose a higher price over a bottom-floor flat rate price every time. So why, then, would you ever only offer one flat rate price for a duct renovation?
It’s a new way of thinking. Take your costs and then look at your assets (what you have that builds value).
The Importance of Value
Skill, talent, knowledge, craftsmanship, experience, and tender-loving care will increase the value on top of the cost. It will allow you to go above that flat rate price we just calculated.
Let’s break those qualities down to see how we might quantify them.
- What talent do I have that I can add to my parts and labor to increase the value of this job?
- What knowledge do I have that will increase the value of this job when added to the parts, labor, and talent?
I’m suggesting that you may never have thought about how much value each of your assets has that can help you be more profitable.
Let’s make those valuable qualities concrete, not just hypothetical.
Knowledge: what do you know? You know that in your market, duct leakage costs as much as 50% of the efficiency of the equipment. Therefore, you know that duct renovations will make a significant difference, even if you don’t replace the system.
That knowledge brings value. What is something you could do with that knowledge – beyond a basic repair –that would be better for the customer and for which you could charge?
Talent: Through your experience and training, you know several ways to increase and enhance airflow efficiency, functionality, and performance through ductwork.
As a result, you can add duct modifications where needed that will improve overall system performance. Do you think that’s worth anything?
Skill: Again, your training and experience helped you build the skill and craftsmanship to do a fantastic job using many different methods – whether using bubble wrap, fiberglass, or spray foam. You are an expert with many ways to accomplish this project. Is that worth anything?
Wisdom: in HVAC terms, knowledge is gained over time by being exposed to many (often dangerous) obstacles, many instructors, and by trying lots of things. Therefore, your wisdom brings enormous value to duct renovations. Plus, the more you do them, the more knowledge and experience you gain, which adds a great value.
Add in a Dash of Loving Care
When people are so happy if you show up and do what you say you will do, tender loving care adds enormous weight to the value equation.
Life is a test; give it a run for the money! I’ve given you two formulas. Let me now give you this powerful secret for success: Low Cost Plus High Value Plus understanding how there is no ceiling to “what the market will bear” equals profits never seen before in home services.
These are the things you consider when you build a menu of options off the calculated flat rate price. Think about what the job requires—that’s the floor. Now dream bigger. What bit more could you do for your customer that they would see as valuable? Then get paid for doing it.
Danielle Putnam is president of The New Flat Rate – a home service menu-selling system designed to put profit directly into the hands of HVAC contractors. She is a forward-thinking businessperson who helped her father start The New Flat Rate and previously worked as director of business development for a large digital service firm. She can be reached at ncilink.com/ContactMe.