When you compete on price, someone else can always do it
By Keith Johnson, Pool Works / firstname.lastname@example.org
Your business is more than just a price tag. Develop a good business model with strict procedures and processes. Hire good people and invest in them through training and coaching. Provide an outstanding product that includes great equipment, high quality work and amazing customer service! Once you have these items in place make sure your customers KNOW IT by telling them every day that you may not be the cheapest but you offer them the best value!
What should I charge? For some reason our rates always seem to easily become an emotional issue. After all, we have worked so hard to build our dream. If we charge too much we will lose business! Or will we?
Pricing should be completely removed from emotions and be the sum of four things: Cost of materials, cost of labor, business expense and profit! Growing a business costs money and lots of it. It requires an investment of funds to add that next truck, for example. While you will hopefully get profits from that investment, you will certainly not get that initial investment back. The only way to grow safely is by making healthy profits above and beyond what one takes home personally. Continue to refine pricing, costs and expenses until you reach your desired profit goal.
I have often had smaller pool company owners make the following statement to me, “My business is smaller than yours so I don’t have your overhead.” In my opinion nothing could be further from the truth. Those smaller companies feel they can charge less when in fact their rates should be consistent with the larger guys. Why? A small pool service company may save some money by carrying less liability insurance. They may choose to be workers’ comp exempt. They may rent a smaller warehouse or have no base of operations. All of those things noted, a large service company usually buys some or all of its chemicals by the truck load or buys things in pallet quantities. Like it or not your distributors give the bigger guys better pricing, sometimes much better. Large companies often have safety programs and are particular about who drives their vehicles which results in lower insurance rates per truck than the small guys. Large pool companies spread the risk more in workers’ comp rates and typically have better “experience ratings” which can mean they may pay up to 30 percent less. Larger businesses typically have been in business for very long period of time and have less debt. Large companies simply benefit from the economies of scale.
Large or small, no one should ever try to be cheaper than the next guy. Never compete on price alone. Tomorrow someone with less experience will take the family pickup truck and decide they will be a pool company. Over a short period of time they will provide services cheaper and possibly even take some of your business but if the price structure is too low, then too many corners are cut and sooner rather than later they will cease to exist.