Properly setting prices can have a huge impact on the success or failure of a custom installation business. To casually decide that your company charges X dollars per hour for installation and X dollars for equipment is not wise. As small business owners we must pay special attention to pricing, especially when our prices are being compared with the extremely low markup structure at big box retailers. We must value the unique market that we serve and understand the true dynamics of pricing. Most custom installation companies set their prices too low. Here are my top 10 reasons to raise your prices:
1. Do not attempt to compete against big box retailers or pay much attention to prices in their stores. As you determine your prices for competitive products, you should aim to be 15 to 25 percent above the local retail price. This gives your customers confidence that your prices are not out of line, balanced with the understanding that your higher level of service costs a little more. The extra value of having your expertise in design, installation, and on-site service commitment accounts for your higher pricing.
2. Set the price for installed products at double your cost or full MSRP. That means taking a full 100 percent mark-up on wire, cable, hardware, and installation products. Most of your equipment profits are made by selling at full prices as this helps compensate for lower mark-ups on advertised products.
3. Never be the low bidder. If your plan is to win business with the lowest prices, you should find another career. To be a success, you need to position your company and use salesmanship to convince your prospective clients that your company will do an expert, professional job. There are lots of variables in this custom business. It is very important to setup a system approach for all of your products, prices and install labor. Undercharging your customers does everyone a disservice.
4. When you find your schedule is maxed out, that is a signal to raise your prices. You might lose some jobsthe low-profit jobs that will burn up your time but dont pay a good profitbut you dont want those jobs anyway. Raising your prices means that every job you do will be more profitable. If you set your prices too low, you will have to take shortcuts that do not serve you or your customers.
5. The minimum that you charge for labor should be about four times the hourly rate that you pay your employees. If you pay an installer $20 per hour, add benefits, vacations, training, shop time, travel time, etc. The rule of thumb is to double the hourly rate to estimate your total costs. Figure that employee really costs you $40 per hour. Double that amount for the proper return. If that sounds high, then remember that one hour with a Sears repairman costs more than that.
6. During the first year after installation, you will be providing no-charge service calls. Your profits must factor in these additional service costs.
7. Take into account all of the hours that you spend working on the job for planning, design, ordering, scheduling, project management, and administrative duties. You must charge for these tasks even though they are not performed at the jobsite. Your company cannot handle large-scale jobs without spending considerable time in planning and project management. If you are not billing for all of these hours, you are hurting your bottom line.
8. Selling labor only for prewire jobs is not good business. If you are doing all of the work, you should not miss out on the opportunity to make a profit on the gear that will be sold by someone else later.
9. Increase your profits by selling higher quality audio, video, and control systems. If you want to sell systems for $100k or more, you will need to become dealers for the best gear. Pay the price to become dealers for the lines you really respect. Higher quality always sells for more.
10. You should set out to create an image that your company is the best in the industry. By charging more, your company can hire better employees with more experience and better training. Charging enough to earn healthy profits means that your company can thrive for years. The results will be happier customers, a better company reputation, the respect of your community, and the fulfillment of knowing you did a fantastic job.