The Price is Right?
As contractors, we are very much creatures of habit. Can you remember back not too many years ago when things were really going well and we got into the habit of raising prices every six months or so? We did it for a number of reasons, not the least of which was we could. The market was strong enough and the public in general was accustomed to frequent price increases so we followed everyone else’s lead and increased ours as well.
Then things changed significantly. Suddenly the market was no longer strong; consumers were holding on to their money and spending as little as they could. This meant that often they were repairing rather than replacing older equipment. Since there were less replacements being made, there were more contractors fighting for each replacement. As a result it became necessary for all of us to either hold old prices or drop prices lower than the previous marks. This meant that we had to look inside our organizations and make changes in order to help reduce our costs. We had to find a way to survive charging these lower prices.
Therefore, starting about three to five years ago, HVAC contractors got into the habit of reducing prices in order to maintain a certain minimum volume. I know that some would argue that they didn’t really do this, but my experience tells me that, as a whole, everyone was taking these steps.
Now let’s move forward to 2013. We, creatures of habit, are continuing to operate as if there is only one customer for each 10 contractors. In other words, we are so in the habit of reducing prices on every job that it has become the way we operate. Even after making all of the internal changes possible that extend significant cost savings, our operating costs are going up. But we are currently not in the habit of raising our prices so now is the time that we better beware.
A couple of relatively minor things really brought this home to me. I get my car washed frequently down the street at a place that does the exterior only, but very quickly, and does a really nice job. I’ve been going there for about three years. The price has always been $5 per wash. Last week I stopped in, with my $5 bill in hand. Of course I didn’t read the sign, because I never read the sign, and, to my surprise, the courteous young man informed me that the price is now $6. As I reached into my wallet for another dollar, three things struck me. The first was that they hadn’t increased prices since they opened three years ago, so I shouldn’t be shocked; the second is that they do such a good job, that $6 is still a good deal; and third — perhaps the most important point — is that they were increasing their sales volume by 25 percent without doing additional work.
When in Florida recently, we crossed the Sunshine Skyway Bridge which, since the bridge opened nearly two decades ago, has required a toll of $1. To our surprise, the toll had increased to $1.25. So, with only a 25-cent increase, we reached for a quarter and went on our way. As I was riding over the bridge I was silently counting the cars that filled the four lanes of highway. It became very clear that a relatively small 25-cent increase was going to result in many millions of dollars of additional revenue.
The takeaway: We need to look at our pricing and make sure that we are keeping up with the times.
I’m not suggesting that all contractors need to raise their prices, what I am saying is that if you, like I, have been in the habit recently of not increasing prices, or have even continued to lower your prices, I believe it’s time to take a good look at your costs to make sure that you are balancing your pricing structure with your costs.
Bad habits can be hard to stop, but we all know that we as HVAC contractors provide a very important service to our customers and our community. If we are still in the habit of giving away our services, it’s time we stopped that bad habit. While we may not be able to increase prices every six months, we should at least get into the habit of closely reviewing our costs every six months, to make sure that we aren’t pricing ourselves out of business.
Publication date: 5/13/2013