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The Price Is Right
By Larry Galler
April 27, 2012
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We''ve all seen the TV show "The Price Is Right," where contestants try to guess the price of an item.
One of the interesting things about it is that the contestants, the audience and the viewers at home rarely know the actual price of the product — they are just guessing. There is often an amazingly wide price-range to their guesses.
The angst shown on the contestants'' faces demonstrates a truth of the commercial world: No one really knows the price of anything. It''s much the same in the real, non-TV world.
Looking for the deal
As a consumer, we go shopping for an item or are inviting quotes to do a specific job. Maybe we have a vague idea of what it will cost and how much we are willing to spend.
Then we are faced with the task of comparing one against the other, trying to discover the value in the item, and whether that value is worth the money to us.
In general, we are always trying to spend as little money as possible in order to receive as much value as possible. Your clients and prospects are always faced with this quandary.
As a vendor, we have a different calculation to make. We are always trying to price and present our products and services so the buyer feels like they are getting the most value possible, while we make the most money possible.
It''s a tug-of-war; we are always trying to maximize our income without pricing ourselves out of the market, causing the customer to go somewhere else for a less expensive solution.
How do we do that? Like most things in business, there isn''t a "one-size-fits-all" solution. Start with the fact that there is a big difference between the two arms of this industry: Restoration and carpet cleaning. We will analyze both.
The restorer''s pricing dilemma
A great deal of this work is done on a bid basis, or through pricing negotiations. While the ultimate decision-maker is legally the insured, it is often the insurance company (adjuster) who has much to say in regards to the final price.
Therefore, the pricing needs to be very competitive and, if the pricing between competing restoration companies is about equal, the customer will choose the vendor with the best reputation for best value, which in this equation means quality work, speed and customer service.
This being said, there are also millions of dollars in jobs automatically awarded to those in preferred vendor programs and in referrals from adjusters who prefer to work with specific contractors.
The restorer who gets the job (assuming the value part of the equation is equal) should be the company that is able to do the work most efficiently.
Efficiency translates into "lower total costs to get the job done." Lower labor costs, lower supply costs, lower office costs, lower overhead costs, lower management costs, lower everything.
My first real understanding of this came many years ago when a company I owned sold to both Walmart and K-Mart. I met with buyers of both companies at their corporate headquarters. The K-Mart building was a palace compared to the Walmart facility, which resembled a 1950s small-town bus station.
Their headquarters demonstrated to the vendors that Walmart minimized every possible expenditure throughout their supply chain and overhead structure in order to lower their prices and become more attractive to the buying public. They were much tougher negotiators than their competitors and their success has demonstrated the correctness of their strategy, while K-Mart is losing the battle for the minds and wallets of America.
The carpet cleaner''s pricing dilemma
A disclaimer: I am not writing about the specific pricing that various cleaners charge since there is such a very large range of pricing variables, which include: Geography (urban, suburban, rural); market (commercial, apartment, home); market niche (luxurious, mid-range, budget); and pricing methods: Pricing by the square foot, by number of rooms, by number of "traffic areas" and by level of service ("clean-and-run" to "we''ll move anything and everything then come back the next day and put it all back for you").
There are also different reasons why people want or need to have their carpet cleaned.
At one end of this spectrum is the renter who is moving and must have the carpet cleaned in order to get their security deposit returned. Typically, they are interested in getting the minimum cleaning that will be acceptable to the landlord at the lowest price. In other words, they don''t want to buy protector because they won''t be there to reap the benefits of this service.
At the other end of the spectrum is the McMansion owner who entertains frequently and always wants their home to be a pristine showplace. Money is not a problem and they willing to pay for all the "bells and whistles" you can provide.
I am writing about pricing concepts that will allow you to offer the maximum value to your customer, allow you to be very price competitive, while at the same time allow you to increase your price.
It''s not too good to be true. You can increase your price, yet be price competitive and, at the same time, give your customer maximum value. It''s all in how you present your pricing to your customer.
Realize that carpet cleaning is not a service many prospects often purchase. So, just like "The Price Is Right," most really don''t know what to expect when evaluating a price quote from a carpet cleaner. That''s because it is almost impossible to make a direct, apples-to-apples, comparison.
•One company quotes pricing by the square foot, the next one prices by the room. As a homeowner, I don''t know how you figure some spaces that combine uses such as "great rooms" or combination living room/dining room, while the next talks about "traffic areas" (does your customer know what a "traffic area" is?)
•Are stairs and closets included in a "whole house" quote or not?
•Complicating the price further, from the customer''s perspective, is the amount of service they receive.
•Some cleaners pre-vacuum, post-vacuum and groom, others do not.
•Some include moving furniture, others do not. Some charge extra for pet stain removal and odor treatment, while others do not.
•Does someone without a pet get a discount?
•And there are even more variables that, without a doubt, make it difficult, if not impossible for your prospect to directly compare pricing between companies.
So, with all of these issues complicating the pricing equation, how do you raise your price? Telling the customer that "We''ve just had a 12 percent price increase" isn''t what I''m talking about.
Start by doing some research: A competitive analysis and a cost analysis.
Cost analysis
Spend a little time talking to your accountant, a business coach or engage in some do-it-yourself research, and get a handle on your fixed and variable costs.
If you are doing it yourself, you might want to go to the library and read a basic accounting book to understand these concepts.
Plot your costs at various volume levels to find the bare minimum you must get from each job and from each service to break even. And by breaking even, I mean that you need include enough of a margin to afford your lifestyle.
Competitive analysis
Find out what your competitors do, in the way of service offerings, so you have a basis for comparison, how they explain their service, what they charge for that service, how they discuss price with their prospects and see how your own pricing compares.
With that information, you should be able to compare your service offerings, your presentation and your pricing to those of your competitors.
Now answer one question: What do you that is different or better or offers more value? If you don''t have anything, then you have to develop differentiators to separate yourself from them, to offer something different than they do that will make your service more valuable to your prospects.
Realize that you have many options. Flexibility and willingness to change is critical. Here are a few ways (there are many more) of expressing differentiators:
•Good/Better/Best: This allows you to compete at every service level and price range.
•Bare Bones Base Price/More Expensive Options: This allows you to compete at the lower end of the price/service scale.
•Base Price, which includes all but a few higher-end options: This allows you to offer a relatively complete service without options that only a few customers will value and want to pay for.
•All the "Bells and Whistles:" This allows you to offer a package to your higher-end clientele, those willing to pay for "the best."
Your presentation
Once you have established your value/price strategy, develop a sales presentation. This should explain your services, along with their options, with an eye towards showing that — no matter the level of service, the options they choose, and the price you charge — their choice maximizes the value of choosing your firm.
It is your presentation where you separate yourself from your competition and show your value to your customer. It is the difference between just giving them a price and giving them a story about what they will get for the price — where you sell the "sizzle, not the steak." It is the place that you show them what you do, validate your price, discuss their options, show your guarantee, show your experience and certifications which demonstrate the quality of the work they will receive, and then recommend the best option for them based on what they have told you they are looking for.
It is also the place you can give them something extra for saying "yes" today.
Having a "flip chart" that explains all this, keeps you on script and shows all these important points graphically, will also separate you from your competition because very few, if any, of the other cleaners the prospect talks to will have much of a presentation, if any.
While a "flip chart" is a great sales aid, it isn''t enough. Your presentation must be delivered with confidence, in a pleasing, non-intimidating, natural manner. You don''t want to stammer and you don''t want to sound like a late-night TV used car salesperson. You want to sound like a reputable businessperson working hard to build a business on quality work and value. The only way to give a great presentation is to practice it over and over and over until it is natural, not intimidating and pleasing.
When you''ve done all this, I''ll bet you can increase your price to the amount you are worth, and increase the percentage of prospects that become your clients.
Your clients will be getting a great value — great work at a great price — you will be making more money, and finally, the price will be right!
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Larry Galler specializes in coaching owners of small businesses to grow their business through effective marketing, customer retention programs and systemizing their business practices. Explore how he can help you during a free coaching session by calling (219)464-9463 or e-mail Larry@LarryGaller.com. Visit his website at www.OneYearToGreatness.com.
