These two numbers are essential ingredients for this profit-maximizing job price calculation method. Get them wrong and you can really mess things up. Keep the Goldilocks Effect in mind — not too high, not too low, just right!
NOTE: As your Overhead Costs and Net Profit goals change, you must revisit this calculation and adjust accordingly. You don’t have to wait for a year-end P&L to adjust your magic numbers!
Figuring Retail Prices Using OCH And NPH
Now that you have your magic numbers in hand, it’s time to use them in your new job price formula. Remember, this approach is honoring your non-commodity people power, so estimated labor hours are the key variable. Figure 1 shows the Net Profit Maximizer Equation.
When you follow this sales price calculation method, you will find the following results when compared to “traditional” markup- or divisor-based pricing methods:
- “Labor-intensive” jobs (upgrades & renovations) will be priced a
little higher. - “Equipment-intensive” jobs (typical changeouts) will be priced a little lower.
- You will sell more jobs overall and have more cash in the bank.
- Your crews will be kept busy all year long.
This is a great pricing method for a High-Performance HVAC professional! Be sure to read Ruth King’s books, “The Courage to be Profitable” and “Profit or Wealth?”, to get a full understanding of this incredibly simple profit maximizing job price methodology.
High-Performance Price Presentation Approach
Now that you have the right mindset and a profitable price calculation method in place, it’s time to create or acquire a tool designed to present pricing options on a high-performance sales call. Your price presentation tool should make it easy to offer at least three options and be super easy to adjust based on customer lifestyle and mechanical requirements as dictated by the structure.
This is not a cookie-cutter approach! Even though houses may be identical, each occupant has unique needs that require customized solutions. You must fully understand the needs of the customer and the structure to custom-design solutions that perfectly fit each home and homeowner.
Your custom-built solutions must be unique because each customer is unique, even though your typical HVAC system is built using similar components. Creating a menu of common system bundles makes it easier for customers to decide, simplifies order entry, and increases the average sales price.
Your current service business software may have just what you need to make this simple. If you are handy with a spreadsheet, you can create a nice pricing tool yourself. (That’s what I did back in the day!) If your current software doesn’t handle it or you aren’t able to build your own, ask fellow contractors what they use, or reach out to me for a few suggestions.
Putting It All Together at The Kitchen Table
Developing your menu price presentation skills requires practice to gain familiarity and confidence. While I don’t believe that “practice makes perfect,” I wholeheartedly agree that “practice makes permanent.” That truth can be good or bad. If you practice better behaviors, you consistently generate better results. So, a better way to say it is “practicing better methods makes better results.”
When you fail to clearly communicate the value your solutions provide, your offer will be rejected by most customers. Use words and concepts that customers already understand to describe the many benefits they will enjoy.
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