Lowballing questions

Tony Shelton

Tony Shelton

BS Detector, Esquire
Got a few questions mostly regarding residential, but some about commercial work.

Starting with some background:

Package delivery was by horse and buggy till 1889 when it went to rail. Later, in 1913 truck deliveries began. Air mail began in 1918. Fedex changed everything in 1973.

Prior to truck deliveries package delivery was more than twice the amount it is today (price adjusted for today's dollars)

Once the process became streaminlined via trucking/air mail etc. It has remained fairly constant (adjusted for inflation) up until the past couple of years where fuel costs have caused a little jump.

To keep a product viable a price point must be achieved that is agreeable to the servicer and the customer. Industries that hold tight to a price point and/or technology that is outdated will fail.

Usually an industry starts priced high and as technology improves pricing settles down to an equilibrium. That's not saying there aren't a few out there who will be willing to pay 4 times the price. But the bulk of that market will not.

Here are the questions:

1) What advances have allowed you to speed up your process and keep the same level of finished work (or better).

2) Do you have a set hourly rate that is your continual goal.

3) If technology has sped up the process making your hourly goal VERY easily obtainable have you considered lowering pricing to capture a larger market?

4) Are you, or do you plan to be a one man show instead of having crews?

5) If you are charging 3x more than the local competition (hack or not) and your overhead allows you to operate within your set hourly goal at 2x the competitor's cost would you consider lowering your prices?

6) Do you believe that lower pricing only devalues your work?
 
I started out with a lows 2.3 gal a min pressure washer about 5 years ago. Any extra money I had went to upgrading. At the time I was doing 99 percent car lots. I charged the same as I do now. I currently run 8 gal a min pumps with burnners and do 50 percent car lots. I still charge the same. But now my profit margin is much better. It used to take me an hour to do a tractor and trailer and it turned out ok. Now with the addition of better chemicals I can do it in 15 min. Still charge the same as before but now make a decent profit.
 
bears said:
I started out with a lows 2.3 gal a min pressure washer about 5 years ago. Any extra money I had went to upgrading. At the time I was doing 99 percent car lots. I charged the same as I do now. I currently run 8 gal a min pumps with burnners and do 50 percent car lots. I still charge the same. But now my profit margin is much better. It used to take me an hour to do a tractor and trailer and it turned out ok. Now with the addition of better chemicals I can do it in 15 min. Still charge the same as before but now make a decent profit.
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So it sounds like you started the other way around. You just made less for your time till the equipment and speed caught up. That's one way to do it and always keeps the carrot of a higher hourly profit in the future.
 
I have had customers insist on me giving them an hourly rate quote. I explain to them that a kid could give you a $25 an hour quote. Then I could tell you $65 an hour. Who is cheaper? It would take the "kid" 8 hours to do this job and he might do a ok job. It will take me 2 hours tops and I will be using hot water along with some of the best chemicals out there. I can get it much cleaner then he can. The kid 8 hrs at $25 per hr =$200 bears pressure washing 2 hrs at $65 an hr = $130. So who is "cheaper"?
 
bears said:
I have had customers insist on me giving them an hourly rate quote. I explain to them that a kid could give you a $25 an hour quote. Then I could tell you $65 an hour. Who is cheaper? It would take the "kid" 8 hours to do this job and he might do a ok job. It will take me 2 hours tops and I will be using hot water along with some of the best chemicals out there. I can get it much cleaner then he can. The kid 8 hrs at $25 per hr =$200 bears pressure washing 2 hrs at $65 an hr = $130. So who is "cheaper"?
Click to expand...
that is very true!!:D some people just dont understand things that way even when you explain it. they get stuck on the $65 an hour and cant get past that! at least, thats what i find sometimes with homeowners
 
1) What advances have allowed you to speed up your process and keep the same level of finished work (or better). 8 gpm machines. 2 machines on each unit so one guy soaps and one guy rinses. Scheduling one day each week for one part of the county and booking only jobs in that area for that day.

2) Do you have a set hourly rate that is your continual goal. I don't cahrge an hourly rate, but each guy working should be making me $80 per hour, counting ride time and everything for a 10 hour day.

3) If technology has sped up the process making your hourly goal VERY easily obtainable have you considered lowering pricing to capture a larger market? Yes, and I have

4) Are you, or do you plan to be a one man show instead of having crews?No

5) If you are charging 3x more than the local competition (hack or not) and your overhead allows you to operate within your set hourly goal at 2x the competitor's cost would you consider lowering your prices? Yes

6) Do you believe that lower pricing only devalues your work? No
 
bears said:
I have had customers insist on me giving them an hourly rate quote. I explain to them that a kid could give you a $25 an hour quote. Then I could tell you $65 an hour. Who is cheaper? It would take the "kid" 8 hours to do this job and he might do a ok job. It will take me 2 hours tops and I will be using hot water along with some of the best chemicals out there. I can get it much cleaner then he can. The kid 8 hrs at $25 per hr =$200 bears pressure washing 2 hrs at $65 an hr = $130. So who is "cheaper"?
Click to expand...


+10

Great way of explaining it.
 
D&EPressureWashing said:
that is very true!!:D some people just dont understand things that way even when you explain it. they get stuck on the $65 an hour and cant get past that! at least, thats what i find sometimes with homeowners
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I have 2 comercial customers that insist I give them an hourly rate. They call me up and want a quote on how many hours it's going to take me to do a job. I have to go out and look at the job. I usually tell them it's going to take 25 percent longer than what it will take me. I have to compensate for the running around. So I bid a job for 2 hrs and it takes me 1.5. They get charged for 2 and they are fine with it because I bid it for 2 hrs. Makes no sence to me it only costs them more for an hourly rate in the end but that's what they want.
 
Tony Shelton said:
Got a few questions mostly regarding residential, but some about commercial work.
1) What advances have allowed you to speed up your process and keep the same level of finished work (or better). surface cleaners, chemicals, heat, regular maintenance training

2) Do you have a set hourly rate that is your continual goal.Yes

3) If technology has sped up the process making your hourly goal VERY easily obtainable have you considered lowering pricing to capture a larger market? This really depends. If I have someone that will provide me with say one location, I will not sway on my pricing. If they have multiples, we can work with something as long as they are able to be set up with a route that makes sense.

4) Are you, or do you plan to be a one man show instead of having crews? No

5) If you are charging 3x more than the local competition (hack or not) and your overhead allows you to operate within your set hourly goal at 2x the competitor's cost would you consider lowering your prices? Yes, it makes more sense to have 1% of the efforts off of 100 people than 100% of one mans efforts. Plus, it could allow you to expand your market and it is always better to have your eggs in multiple baskets than in one.

6) Do you believe that lower pricing only devalues your work?
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In most cases, no, but in some cases it does.
 
Tony Shelton said:
Got a few questions mostly regarding residential, but some about commercial work.

Starting with some background:

Package delivery was by horse and buggy till 1889 when it went to rail. Later, in 1913 truck deliveries began. Air mail began in 1918. Fedex changed everything in 1973.

Prior to truck deliveries package delivery was more than twice the amount it is today (price adjusted for today's dollars)

Once the process became streaminlined via trucking/air mail etc. It has remained fairly constant (adjusted for inflation) up until the past couple of years where fuel costs have caused a little jump.

To keep a product viable a price point must be achieved that is agreeable to the servicer and the customer. Industries that hold tight to a price point and/or technology that is outdated will fail.

Usually an industry starts priced high and as technology improves pricing settles down to an equilibrium. That's not saying there aren't a few out there who will be willing to pay 4 times the price. But the bulk of that market will not.

Here are the questions:

1) What advances have allowed you to speed up your process and keep the same level of finished work (or better).

Education, time spent networking etc.

2) Do you have a set hourly rate that is your continual goal.
No. We do however have Salary requirements and planned future expenses. We set our rates based on "expected" volume determined by demographic and percentage of market share.

3) If technology has sped up the process making your hourly goal VERY easily obtainable have you considered lowering pricing to capture a larger market?
No. Lowering price isn't a guarantee of more market share. Only thing that will insure more work is more marketing/selling. Both of which have an expense tied to them. At a certain point, that expense to gain more market share can become too high(percentages) to be any more effective and will actually increase costs (Customer acquisition) and thus increase sale prices.

4) Are you, or do you plan to be a one man show instead of having crews?
Yes.. However, increased payroll and the expenses related to it will actually dip into profits until a "magic" number is reached. The problem with this, for some, is demographics. If there isn't enough of a market, then it will not support the volume needed to reach "magic" number to sustain the expenses and stay profitable.

5) If you are charging 3x more than the local competition (hack or not) and your overhead allows you to operate within your set hourly goal at 2x the competitor's cost would you consider lowering your prices?
Not if the price point is average. If the "going rate" is $ xxx.xx, then we stay close to $xxx.xx. unless it becomes impossible to meet expenses/goals. We are fortunate enough to be able to price close to the competition, yet still realize our goals. Adain, lowering the price is no guarantee of more volume. And pricing with that assumption will only cause you to work at volume discounted prices yet never getting the volume to support that price level which in turn cause4s you to never meet the expenses/goals

6) Do you believe that lower pricing only devalues your work?
This question is only an eye of the beholder thing. From a customers point of view, we think Walmart sells cheap stuff. But if you stand outside a Wal-mart for an hour and count heads and then multiply by an average $10 spent, they are making astromomical rates/hour. Makes mine look like chump change. The difference is that they have voulme to support the lower sales tag but the overall hourly is high.
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One point is that whendiscussing pricing, we all need to remember that not all of us sell the same thing. At a certain point the price ceiling is capped. The only way to go above that capped price during a sale is to sell something more than the others that are "capped" Add-ons etc are good for this. Also, selling something tatally different than the competition. Something that only a consumer can put a price tag on. ie...Giving a homeowner the time to go play golf because you gained thier trust to handle a chore that was keeping them off the fairway. Selling a family time to go on vacation because they didn't have time to spend aweekend away from home due to a daunting task that would have taken them ALL weekend to do.
 
FCPWLLC said:
One point is that whendiscussing pricing, we all need to remember that not all of us sell the same thing. At a certain point the price ceiling is capped. The only way to go above that capped price during a sale is to sell something more than the others that are "capped" Add-ons etc are good for this. Also, selling something tatally different than the competition. Something that only a consumer can put a price tag on. ie...Giving a homeowner the time to go play golf because you gained thier trust to handle a chore that was keeping them off the fairway. Selling a family time to go on vacation because they didn't have time to spend aweekend away from home due to a daunting task that would have taken them ALL weekend to do.
Click to expand...

2) Do you have a set hourly rate that is your continual goal.
No. We do however have Salary requirements and planned future expenses. We set our rates based on "expected" volume determined by demographic and percentage of market share.




If I'm reading this right, IF you have a required salary of $200,000 you take that and add your planned expenses (say $100,000) and now you have a set nut of $300,000.

You then take the entire market and determine how much you think you will capture. (Say the total market in your area is $500,000.)

Somehow you come up with a marketing plan that you think will get you 1/2 the market or $250,000. You are then short $50,000 so you have to raise your prices to cover your nut.

Is that right? That all sounds good in a college classroom and all that stuff they teach about supply and demand, but in the real world it just doesn't seem like a stable way of determining competitive price points.

Maybe I'm misunderstanding.


3) If technology has sped up the process making your hourly goal VERY easily obtainable have you considered lowering pricing to capture a larger market?
No. Lowering price isn't a guarantee of more market share. Only thing that will insure more work is more marketing/selling. Both of which have an expense tied to them. At a certain point, that expense to gain more market share can become too high(percentages) to be any more effective and will actually increase costs (Customer acquisition) and thus increase sale prices.

Sounds like you are saying - "My price is my price and I will keep it at that price unless I have to raise it more to pay for all the marketing it takes to get you to pay my price". :p

If you have a $100,000 economy car and you live in the boondocks of Mississippi all the marketing in the world will not sell that car. On the other hand if you develop a truck that gets 100 mpg and sell it for less money than the competition you will most definately guarantee yourself larger market share. Probably with very little other marketing costs.

4) Are you, or do you plan to be a one man show instead of having crews?
Yes.. However, increased payroll and the expenses related to it will actually dip into profits until a "magic" number is reached. The problem with this, for some, is demographics. If there isn't enough of a market, then it will not support the volume needed to reach "magic" number to sustain the expenses and stay profitable.

Good point.

5) If you are charging 3x more than the local competition (hack or not) and your overhead allows you to operate within your set hourly goal at 2x the competitor's cost would you consider lowering your prices?
Not if the price point is average. If the "going rate" is $ xxx.xx, then we stay close to $xxx.xx. unless it becomes impossible to meet expenses/goals. We are fortunate enough to be able to price close to the competition, yet still realize our goals. Adain, lowering the price is no guarantee of more volume. And pricing with that assumption will only cause you to work at volume discounted prices yet never getting the volume to support that price level which in turn cause4s you to never meet the expenses/goals

This is where your magic number comes in. Working alone a guy can keep a goal of $200.00/hr and stick to it by varying the speed of his work. At that rate he can make about $400k per year full time. OR he could go for the lower priced market and shoot for $125/hr for each employee and take home $80/hr for every hour they work. Three guys and your salary is covered and you can spend all day marketing for more. But that can't ever happen as long as the "magic" number is looming like the grim reaper causing fear to lower pricing.

6) Do you believe that lower pricing only devalues your work?
This question is only an eye of the beholder thing. From a customers point of view, we think Walmart sells cheap stuff. But if you stand outside a Wal-mart for an hour and count heads and then multiply by an average $10 spent, they are making astromomical rates/hour. Makes mine look like chump change. The difference is that they have voulme to support the lower sales tag but the overall hourly is high.

I think the demographics can be very limiting in smaller cities and towns. It's tough.
 
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