Archive for March, 2012

Plumbing Pricing Strategy

Wednesday, March 21st, 2012

Your Pricing strategy goes to the core of your profitability and customer service. This article explores several of the issues involved in this complex aspect of a plumbing business.

On the simplistic side of this issue we have labor and parts costs. On the emotional side is the relationship between the customer, technician and the purchase decision.

Labor cost is complex because of all the variables involved to deliver service. Here are items that you must consider when calculating your cost to provide each hour of service.

  1. Payroll (Hourly, commission or billable hour)
  2. Fuel
  3. Vehicle maintenance
  4. Vehicle depreciation
  5. Vehicle Insurance
  6. Licensing and vehicle registration
  7. Vehicle payment
  8. Marketing (factor the cost to stay in contact with your customers 3 times per year)
  9. Office (If you work from home factor a minimum of 25% of your rent or mortgage)
  10. Office utilities
  11. Office supplies
  12. Liability insurance, bonds and state licensing fees
  13. Accounting
  14. Dispatching cost
  15. Employee benefits (this is not limited to 401K and health benefits)
  16. Accounts billable (Carrying costs are very expensive)
  17. Consumables (latex gloves, solder, invoices, business cards etc.)
  18. Profit margin (if your profit goal is 15% you will need to factor approx. 25% to meet your goal)
  19. No charge invoices (factor the % of customers that do not pay for service or FREE ESTIMATES)

Plumbing Industry Labor Rate Calculator 

A common mistake when calculating your cost to provide service is not charging for future items. If you do not have a vehicle payment, office lease or dispatcher to name a few you must consider these expenses today to build your business in the future.

Once you have an hourly rate the next challenge you will face is mark-up on material/parts. Improper mark up on material is one of the top 3 mistakes responsible for a 93% failure rate for service companies within the first 5 years. Warranty issues are the obvious. Don’t forget stolen parts, damaged material and parts given to a customer for free as a customer satisfaction.

Below is the industry standard parts mark-up:

  1. $0.01 – $10.00 = 400% mark up
  2. $10.01 – $25.00 300% mark-up
  3. $25.01 – $50.00 200% mark-up
  4. $50.01 – $200.00 60% mark-up
  5. $200 & up 40% mark-up

The best way to secure accurate pricing in the field is to have a standardized price book for the most common services and a bid worksheet for tasks not serviced daily. Assuming your price book is designed to benefit the customer and the service technician it will reduce price negotiations, buyer remorse, negative emotions and most important build value. This is a proven method of delivering price in most industries well before the plumbing industry adopted menu style pricing. Any advantage your company can gain will be a positive outcome in this increasingly competitive market.

The author of this article Mark Carrasco can be reached at mark.carrasco@mrpricebook.com or 214-770-3652. Mark is the author Mr. Price Book the industry standard in Plumbing Pricing Books.


It’s About Being Local

Sunday, March 18th, 2012

In the Plumbing business the more local you are to the person seeking services, especially emergency services, the higher your response rate will be. Few Plumbers will argue with me on this point but the challenge is that many Plumbing Businesses serve several local markets.
The simple solution is to have a physical location in each market but the cost of that is prohibitive. So the issue becomes one of balance between the cost of a separate locations and the value to your business. The good news is that you can enhance your localness without going to the extreme of opening unnecessary offices.

Phase I: Phone Numbers

Stage one of getting local is phone numbers and most plumbers have known for years that they can get local dial phone numbers and redirect them to an office in another location. The question becomes how far to take this concept. The golden rule is that you need one phone number for each significant market area. A significant market is an area that identifies itself as a separate community. The issue of significant area is critical to keeping your expenses in check while getting as local as you can be. In Los Angeles for example there are 82 cities and some of them get localized traffic and some simply do not. If you get a central office code for an insignificant area all you have is an expense.
Phone numbers are made up of area codes, central office codes, and phone numbers. For example (805) 481-0118 is my local office number. The 805 area code tells you that I am in Central California, the 481 central office code tells you I am in Grover Beach, and the 0118 is just a number. In any local area the people living there will instantly recognize the area code and most of the central office codes. Like most areas we have overlap between cities so 481 or 489 both say either Grover Beach or Arroyo Grande. Having both a 481 and 489 number would be of no value because they are seen as one community.

How Accurate is the Location?

Localization cuts both ways so be careful with how close to the bone you cut. Google and many others are working on the problem but a searcher’s physical location and their system location are not always the same. My office is in Grover Beach but my internet location often reads as San Luis Obispo, which is 12 miles north on Hwy 101 and is considered a significantly different market. A mistake in the geographic location of 15 miles is not uncommon, especially if the audience is a consumer rather than a business. There are many reasons for the location being wrong but and current estimates put this error level between 50%-80%

Phase 2: Location based landing pages

At this stage you have figured out what communities are significant in your market and you have a phone number to serve that market. Next you need a page to land on that is specific to that community. You can, as some do, just put the local number on your regular home page but that is much weaker than a localized page with one number. There are some trade-offs related to the geographic error. If the location is being read wrong the highly localize page can be a negative not a positive.
We often see Plumbing sites with a huge stack of city name links off their home page and these are often part of the template but in location based pages you do not want this copied forward. You want the page to be solely about the location you are promoting and nothing else. Again the more things you are about the less you are about the one thing you are focusing on.

Phase 3: Dealing with Google Places

A big challenge in getting local is Maps and Google Places because on most plumbing searches Google Places is 40% of the top of the results page. For each area that you have a local operation make sure that you claim the Places Listing and promote that location. For each location you want to promote the physical location and invite reviews since these are two of the big factors in how the maps are optimized. Your physical location does not have to be a huge office but it has to be able to receive mail and have its own phone number. The days of claiming a physical location without really being at the location are behind us but Google Places is still incredibly important to your business.