In this following paragraphs you will learn. . .
1: How to identify a professional company based on their pricing model.
2: If you really need a professional company or if a DIY enthusiast/Handyman would be sufficient.
When it comes to Tradesmen companies, they typically fall in to one of two categories.
1: Those that charge by the hour.
2: Those that offer a 'Guaranteed Fixed Price' for their services.
Below we will look at both types of company and list the 'Pros & Cons' for each.
The majority of Plumbing, Heating & Gas companies will start out this way and they simply have a set price that they charge you based upon the amount of time they are at your property. (This may be referred to as a 'Hourly Rate' or a 'Day Rate').
When a company charges by the hour, what do you think would happen to their profits if they choose to . . .
Not employ professionals?
Not pay for their engineers to attend advanced training courses?
Dismiss any employee thats good at their job?
Thats right, their profits will go up! This is because they will often take longer to solve your problem! . . . 'The longer the work takes, the more profit the company makes'.
Pros:
These companies are usually cheaper for basic, simple jobs such as a dripping tap or unblocking a drain?
Cons:
They may take longer to solve your problem?
They may be more expensive for problems that aren't straight forward?
Their lack of training may mean the fault will return if they have not identified and resolved the root cause of the problem?
Pros:
Your client is essentially paying you to learn the more advanced aspects of your trade on a trial & error basis which is great for those just starting out.
If you want to grow your business, it's cheaper to employ staff with minimal knowledge and qualifications than those that have completed a range of advanced training.
Charging by the hour means the longer you take, the more profit you make and when you employ staff with minimal training/qualifications, they are also likely to take longer to solve your clients problems, meaning higher profits for your company.
You will almost certainly be cheaper than the fixed price company for basic jobs such as a dripping tap or a blocked drain and likely to get more of these jobs.
Cons:
If you are good at your job, if you make significant time and financial investments in undertaking advanced/specialised training, you will be rewarded with . . .
A pay cut! (Because you will solve more problems in a shorter space of time.)
If you have any employees that are good at their job, they will not be very profitable to your company because they will be solving the problems quickly, meaning it is in your best financial interests to dismiss those employees and employ less experienced/knowledgable employees.
Companies that operate on a fixed price service are few and far between.
For a company to work on a fixed price basis, they need to be extremely confident in their engineers abilities to solve your problem in the shortest possible time.
The pros and cons of using a company that offers fixed pricing are as follows . . .
Pros:
You know how much you will be paying. (For example, if your heating has stopped working, the company will have a fixed price to attend your property to diagnose the problem. Once diagnosed, the company will then be in a position to provide you with another fixed price to purchase and install any spare parts required to complete the repair.).
Fixed price companies will only employ professionals.
Fixed price companies will invest time and money in regular advanced training.
Fixed price companies will dismiss any employees that are bad at their job.
. . . this is because the longer the company takes to solve your problem, the LESS profit the company makes.
Cons:
Companies with a 'Guaranteed Fixed Price' will usually be more expensive for small basic jobs such as, dripping taps, blocked sinks or drains, typically tasks where the skill level required to complete the task is considerably lower.
From a companies point of view, you would only want to move to fixed pricing if you/your employees are very good at the services you offer.
Pros:
Your time and financial investments in undertaking advanced/specialised training is rewarded.
Cons:
You have to market your company on being a professional and not with gimmicks. (Claiming you 'Guarantee to beat any like for like quote' will no longer be possible as you will be providing an accurate fixed price and unable to add-on any 'Unforeseen extra costs' once the work has started.)
You are unable to offer free estimates. (Providing a guaranteed fixed price is a very time consuming process and that time needs to be accounted for by charging a fee for this service. It does have the added benefit of filtering out those that are just wasting your time and looking for the cheapest price as they are usually unwilling to pay for your time to provide them with a price.)
You will need to accept the fact that some clients will not want to pay your fixed price because they believe the less qualified company, that will be charging them by the hour, will do the work faster and therefore be cheaper.
When a company operates on a 'fixed Price' basis, you can be sure you are dealing with a professional company that has confidence in their abilities.
When a company doesn't have this level of confidence, they will be reluctant to offer a fixed price and will want to charge by the hour to make sure they cover their employees time. - Does that make sense?
If you have a simple task, such as a dripping tap or a blocked sink for example, the company with the 'Guaranteed Fixed Price' will probably (But not always) be more expensive than the company that charges by the hour.
If on the other hand you have a more complex task, for example let's say you have a problem with your hot water or central heating system? Maybe you have a problem that another company has either failed to, (or just doesn't know how to) solve the problem, then in these instances, a company with a 'Guaranteed Fixed Price' is the best option.
Summery (A Tradesmans Point Of View):
As a business owner, if you are. . .
Just starting out.
Don't have very much experience.
Aren't very confident in your abilities.
Can only afford to employ people with basic qualifications
Have years of experience but are approaching an age where you simply don't want to put in the time required to update your skills or spend money in this area.
Offering a guaranteed fixed price is probably not the best option for you and you should stick to charging by the hour until you get better/faster at the specific area of work you specialise in.
Alternatively, if you. . .
Regularly invest in ongoing, advanced training.
Can solve the majority of problems quickly.
Only employ other highly qualified engineers.
Are willing to lose some clients to enable you to provide a higher level of service to those that remain.
In this situation, it's in your best interest to move to a fixed price service.
If you would like a 'Guaranteed Fixed Price' for some work in your property, the button below will allow you to make an appointment.
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How much should you charge?
This part of the page has been created to help the tradesmen decide what they should be charging for their services when they move to fixed pricing.
Whilst it will help clients understand what they can expect for their money, it's primary purpose is to help the tradesmen and speaks to them.
As a tradesman, tell me if this sounds familiar to you.
When you were deciding what you should be charging for your services you looked at what your competitors were charging and then you thought, I know, i'll charge a little less to 'Remain Competitive', and that way I will have loads of work!
.
Be honest, that's exactly what you done isn't it?
However, you soon discovered that at the hourly rate you have chosen, you do have loads of work as you predicted, but there's just one problem. When you do the work correctly, in full compliance with all regulations/guidelines, the way it should be done, there just aren't enough hours in the day for you to make a profit and you would be earning more money stacking shelves in the local supermarket.
That sounds familiar doesn't it!
Upon realising this you gave it some thought and concluded that you have three options.
: You can cut a corner here and there to do the work faster.
Whilst this will give you the time you need to do an extra job or two each day, which in turn will boost your income above minimum wage, it does mean you could in all likelihood be placing the health, wellbeing and potentially the lives of your clients (and their families) at risk.
: You could work 12-16 hours a day.
This will also give you enough time each week to do a few extra jobs correctly that would also boost your income above minimum wage.
Or
: You could put your prices up!
This will mean you have enough time to do each job correctly and only have a normal 8 hour working day.
When presented with these options, you chose either 'Option One' or 'Option Two' because you felt that if you were to put your prices up by the amount required, you would be too expensive and your clients would simply go to one of your competitors who were offering what appears to be the same service, at a much lower price.
I'm right again aren't I!
Personally I chose 'Option Two'. I then made another big mistake of not tracking my time/income (Partly because I was so busy) and for a very long time, the hourly rate that I was getting to take home when all the costs of running the business had been deducted was below the national minimum wage. (My four year apprenticeship taught me to be a tradesman, it had no training at all on how to charge for my services once I was qualified!) .
The problem with this method of pricing is with each new company that starts up in business or each company that gets short on work and drops their prices in an attempt to get more work, one of two things has to happen. There is either a dramatic drop in the profits for the tradesman, or the standard of work the client gets.
For example, lets assume I offer a specific service at £200, that's not all profit, that will include a percentage of the following expenses. . .
Marketing Budget: Companies need to market their company to acquire clients. Advertising on Google is currently costing between £5-£15 every time someone clicks on a advert to visit the website. Thats not to get a customer, that's just to click the button to go to the website. If the company doesn't offer what the visitor is looking for and they go back to Google, you still have to pay Google their£5-£15 (depending on the phrase/keyword used) for that service.
Training: Technology is always advancing and if you are not up to date with the latest technology, you won't be as efficient as you could be when it comes to maintaining the latest appliances.
On top of this you have the basic ongoing training such as Gas Safety, Unvented Hot Water, legionnaires Disease Prevention and so on.
Subscriptions: Website Design, Website Upgrades, Website Hosting, Software for invoicing, Accounting and so on.
Insurance Policies: Vehicle Insurance, Tool Insurance, Public Liability Insurance, etc.
Licences: Trades Waste Licence, Gas Safe Membership.
Tools: A tradesman is only as good as his tools. A quality tradesman will have quality tools and these tools will need maintaining and upgrading as they age if the tradesman is to remain as efficient as possible.
Some of the testing equipment used by gas engineers needs to be sent away every 12 months to be re-calibrated to ensure it's working as the manufacturer intended.
Vehicle: Wear and tear of the work van, fuel and servicing costs need to be accounted for.
Health & Safety: Not all of my clients are in good health. Since Covid I have been wearing disposable shoe covers and gloves at every property I attend. I also switched from using tool bags (that cannot be sanitised) to tool boxes that can be wiped down between jobs with anti-bacterial spray to help minimise the risk of transferring viruses from one property to another.
Storage: Many tradesmen will have a lock-up storage type unit where they store spare materials or tools or perhaps a workshop/office space which will have it's own additional costs associated with it.
These are just some of the things the fee charged to the client covers.
However, when someone starts up their own business, they don't look at these costs they only look at what their competitor is charging (In this example it's £200) and decide to change a little less for the same service to 'Remain Competitive'.
When this company decides to provide this service for £150 instead of £200 they quickly realise they aren't making a profit. To overcome this they may decide cut a few corners here and there in the process to do the job faster and give them time squeeze another job or two in to their working day so they are able to make a profit.
Shortly after this another company comes along and does the exact same thing. This time they find a company offering the same service for £150 and decide to offer it themselves for £100 to ensure they are 'Competitively Priced'. Again, they soon realise that at that price, the only way they can make a profit is if they cut a even more corners.
. . . and so it continues until you have companies that are offering the same service at such a low price that they are essentially forced to cut so many corners that they place the health & wellbeing or their clients and their clients families at risk.
The Solution:
If you are a professional tradesman I personally feel you have a moral obligation to raise your prices to a level that means you have sufficient time to do the work correctly.
Just because your client does't know the gas regulations and consequently has no idea if you're cutting corners in your work, does't mean you should do that to keep the costs down!
Your client is paying you for a professional service and thats precisely what you should provide them with even if it means you have to charge more than your competitors.
Right now you are saying to yourself, 'But if I put my prices up by that much, nobody will give me any work!' . . You are partly correct. Some of your clients will indeed look for an alternative, cheaper company.
However, provided you take the time to explain to your clients why your prices are going up, how your new higher prices will allow you to provide them with a higher level of service, you'll find the majority of your clients will continue to use your services in the future.
From my personal experience, I found the clients that remained were typically the more intelligent clients that understand and accept they will only get what they pay for. . . at least that was my experience!