Following on from last week’s piece about why installers need to raise their prices, Wayne Bettess looks at how it can be done.
Hi. Wayne Bettess here, co-creator of Warrior Trades.
For those that do not know me, I have been a heating engineer for over 15 years and an entrepreneur since I was about 12 (from selling sunglasses on the school field to cigarettes behind the bike sheds… some great margins looking back now). I feel us trade professionals are being left well behind when it comes to what we earn. What I mean by that is the money we have left in our pockets and how far it can go in today’s world.
Many of you will have already read my previous article on why we must raise our prices. Now it’s time for me to explain a few very easy strategies for how you can implement your price increases into your business.
A lot of people have reached out to me to express their fear of raising prices. The main objections are listed below:
- “I will lose a lot of my customers”
- “My customers will complain”
- “They have been loyal customers so it’s not fair”
- “I haven’t got the confidence to do it”
- “I’ll just get undercut by others”
My one question to anyone that is raising objections is simple… have you tried it?
For many, the answer will be no. My response to those people is to just try it.
You can sell yourself the false perception that you cannot raise your prices but until you at least try, how will you ever know?
I received a message from a man who read my previous article and decided to take action. He stuck 15% onto the job total and guess what… he got the job with no objections from the client! This is a win-win situation, as the man in question will now complete the work and be grateful for it, rather than being resentful that he is working for below what he is worth. The client will get a quality job with no corners being cut because of money/time constraints on the job. It’s what people call fair exchange. Any good business has to be built on fair exchange otherwise it’s nothing more than a house of cards ready to fall at any moment.
Three effective strategies
Baby Step Method
As the title describes, this method is for the more cautious trade business owner. The way to implement this is very simple, all you do is, over a period of 18 to 24 months, make small increases in your charges. The downside to this method is that it takes time to reach your target amount but the big plus is the vast amount of your customer base will not really notice the change. I would suggest a 5 to 6% increase a year until you hit your target. Bingo, your net profit will be rising… albeit slowly.
Big Kahuna Method
Well, I think you can guess where this one is going. Basically, you wake up, take a deep breath and bang your desired increase percentage onto all new jobs. Simple? Well, not quite. I read an article from a multi-millionaire entrepreneur which mentioned that, in most businesses, 20 % of clients will be up to 80% of your headache. Guess what, this method will soon weed out the customers that want something for nothing and that will free up your time to provide a better service to your remaining loyal customers – the ones you will now be making a lot more net profit from.
Low/Standard/Premium Price Choice Method
This can be a great strategy, it involves creating a LOW (current prices) standard (price increase) and premium (bigger price increase) price structure. To put this into a real-life situation to make more sense of it, I’ll give an example using fixed prices, (so not breaking down costs to clients, as you wouldn’t go into McDonald’s and ask them what the cost of the burger was to them).
- Low price – the cost to replace with a budget 3 port valve – £155+VAT (gross profit £120). This represents your current price
- Standard option – the cost to replace with a mid-range 3 port valve £180+VAT (gross profit £130). This represents a 9 % increase
- Premium option – the cost to replace with a top end 3 port valve – £240+VAT (gross profit £140). This represents a 17 % increase
This method allows the customer to feel in charge, and you cannot lose on this as the low option is your current price
This method is for every business in general, but can also be a way for people that cannot get past the mental block when it comes to raising their prices. It can quickly start making you more money for every job you do. In essence, when you are at a job you have a captive audience. This is the prime time to sell. I don’t mean rip people off, I mean offer something that they may need. A good example for this would be a carbon monoxide alarm. This will dramatically increase your net margin and help keep the customer safe. That’s a great result if you ask me!
Whatever method you decide to use to raise your prices, it’s paramount that you take action straight away. Do not wait until next week, as that will turn into next month and then it will never happen and you will be stuck 15 years of inflation behind the rest of the UK.
Warrior Trades is here to help small trade business owners learn, earn and grow so please do not hesitate to contact us with any questions or issues you are facing.