ACHRNEWS

Contractors, Make More Money Right Now

November 15, 2003
Profit is a wonderful thing and something contractors need more of. Here are some ideas you can use to improve your profit situation right now.

David DeLancett

Do It Now

Raise your service rates. Many of your competitors' rates are probably higher than yours right now. Experience has shown that you will lose very little, if any, business by raising your rates three to eight dollars an hour. This will give you an immediate boost in cash flow and profits. Other industries consistently charge more per hour than the HVACR business. You deserve to be paid competitive rates.

Institute a fuel surcharge. Many companies that use fleets of vehicles charge a fuel surcharge when gas prices rise. It's almost the norm these days and consumers are conditioned to it. A five dollar surcharge on each invoice will make a significant difference to your net profit margin.

Use the "sticker shock" theory. This is used masterfully by the automotive industry and is one of the most powerful methods you can use to overcome the low bid problem and sell up for higher profits.

Here's how it works. When you are selling a job, use at least three options. We'll call it good, better, and best for this example. Most people really want the best system that is right for their circumstances. You should offer the very best system you can provide that solves their comfort needs and energy saving issues. This should include all the accessories that are appropriate for them.

Don't be afraid of what might seem like a very high price for the best system including all the extras. Be proud of the fact that you are solving their problems and serving their needs. Experience shows that between 11 and 19 percent of the time, they will buy the best system with virtually no resistance. If you did not offer the very best system, you would lose those opportunities.

What about the others who do resist the highest price? This is the beauty of the whole strategy. Because you have sold them on the highest system, at least as far as that being the system they really want and need, they will be psychologically affected by the high sticker price, which you gave them after they were convinced that they needed and wanted the better system. Thus they will have sticker shock.

What has happened is really a positive for you if you handle it properly. Their mindset is being altered in a way that broadens their mental range of what things cost. Instead of them looking at systems that cost $2,800 to $4,300, they are now looking at costs from $2,800 to $8,499. These are just random numbers but the broader scale of the price is the idea.

This now makes a mid-range price more palatable. It can also create a thought in their mind that the low-end price is for something cheap that may not serve their needs. You have a great opportunity to help them get a very good system that they need and want, but possibly without some of the expensive options if they won't pay the higher price.

I've used this strategy hundreds of times with much success. It will help you overcome the low-priced competition and you will make more profits. You'll have happier customers as well

Use the "finance the difference" sales strategy. This strategy is extremely effective in selling up and beating your lower priced competition. It is very simple. Here's what you do.

When you get a price objection from a potential customer, you must determine the amount they consider too high. This is the difference between you and your competition, or the amount that they are unwilling to spend. This amount could be the dollar amount between two of the systems you have proposed. Get them to agree on what they are willing to spend.

Let's say for example that they say you are $500 too high. The competition is $500 lower. You should find out if they would buy from you if the price were not a problem. This let's you in on their thought process regarding you and your company. Do they like you and would they buy from you? I like this next question: "If both my and my competitor's systems were free, which would you prefer?"

Hopefully, you've done a very good job of providing the right system that serves their needs and wants, and have convinced them that you and your company offer extraordinary value. If they say that they prefer your system, then you are prepared to move forward. If they prefer the competition's proposal, then you have to start again on selling the value of your proposal or improve it.

If they prefer your system but still say that you are too high, you have to determine if they don't feel your system is worth that much or they are just not going to spend the money. They either don't want to spend the money or they don't have the money to spend.

Now you put the "finance the difference" strategy into effect. Offer to finance the difference between what they are willing to spend and what your proposal is for. In our example, it is $500. Finance $500 and the payments are less than 20 bucks per month. A question to the consumer is: "If you finance the difference between what you want to spend and what you really want for your home, you will save enough on energy alone to make the payments and still have the better system and all the benefits (name them) that the better system provides. Wouldn't you want all those benefits and extra money each month as well?

"Mr. or Mrs. Consumer, for less than five dollars a week, you can have the system that you said you would rather have with all the benefits (name them) that it provides. Would you really want to deny yourself all that for only five dollars a week?"

The point is to focus on the difference in price. Not the whole price. They have agreed to a certain amount of money they are willing to spend. The only thing left to sell now is the difference. By reducing it down to the difference and then down further to a weekly amount, it becomes something they can live with.

These two techniques above are powerful and easy to learn. They help you sell the best system for the customer and at a good profit for you. In the end, the customer will be much more satisfied than if they go with the low bid.

More Moneymaking Ideas

Use all your co-op dollars and then ask for some more. Many dealers waste co-op dollars. They don't use them all. Manufacturers and distributors want dealers to advertise and market their products. They can provide advertising and marketing help for you. They put together great programs that are usually less expensive than if you do it yourself. Take advantage of all the opportunities they offer.

Ask your manufacturer or distributor for leads. That's right. They do get leads all the time. They advertise in major magazines, newspapers, and television. They get direct consumer calls and they have to get those leads to a dealer somewhere. At York, we have a dealer locator that is either Web based or by phone. Consumers contact our best dealers through those means. If you ask for help developing leads, your manufacturer or distributor will be more than happy to help you with a special program designed specifically to generate leads for you. Ask and you will probably get what you want. This will bring higher profits to you through increased sales.

Train your people. You can increase productivity and efficiency by training your people. You've heard this before but it's worth saying again. Your manufacturer or distributor will usually come right to your location and train your people on everything from technical to installation to business practices. This can be a big way to make more money. Just think - less callbacks, less overtime, and less costly mistakes. Your reputation for quality will improve. Many of your headaches will be gone. It's worth it and, by the way, most of this training should be free from your supplier.

Use safety as a selling point. Very few contractors use this selling idea and it's too bad because the ones who do are taking jobs from their competitors. It also helps overcome the price wars. Here's what it sounds like when it is used with a customer. "Mr. or Mrs. Customer, our company will do the finest job of installing your new comfort system, but before that, we feel it is important for you to know that we put safety first in every aspect of your job. Everything must be done right the first time. We make sure that our employees are perfectly safe on the job. They have all the safety items they need to prevent any accidents from happening. We even practice safety routines to ensure this. We go much further than that. We make sure that every detail of the job is safe and that means the safety of you, your family, pets, and property.

"We think safety not only while we are on the job but after we leave as well. Everything is picked up, cleaned up, and tested for safe operation. (This is a good time to mention the tests that you do to ensure safe operation). We go even further to protect the safety of your home and your belongings. We know your home is your castle and we treat it with total respect. No damage will happen to your walls or floors. We protect everything so that you are totally pleased when we're finished. We don't think anybody takes as much pride in the safety factor as we do. We think that's something you will appreciate."

Research has shown that people worry when workers come into their homes. Take the initiative to alleviate their worries and fears and you will get the job. This means higher profits.

There are many other great ideas out there but these are powerful and will yield more money for you right now. Take some strong action and watch the money flow.

David DeLancett is the Philadelphia branch manager for York International. He has served as a Florida branch manager, national accounts executive, and territory manager. He was formerly a retail sales manager for a large HVACR contractor. DeLancett holds a certified Florida contractors license and is a sales and time management trainer.

Publication date: 11/17/2003