Last spring, I took a camping trip to Yosemite National Park, which was probably the coolest place I’ve ever been.
While hiking to the top of Yosemite Falls, I came across a guy who owned a window installation company in Washington State. Let’s call him Cliff for the sake of this story.
I always try to learn from other contractors so I took this opportunity to ask Cliff some questions about his business.
I was immediately hooked. Here was somebody I could learn from. He had 30 years of window contracting experience with 15 years as the business owner.
I was drawn to Cliff’s confidence as well as his level of experience. You could tell he had shit figured out. The fact that he was in Yosemite with his family gave him points in my book.
At the time, I was struggling with pricing my services and always questioning whether I was too cheap or too expensive. So, as I followed him up the steep mountain trail I asked him how he determined his pricing.
He as passionate about this topic, so I knew I’d found a gem. I could hear the hard lessons he’d learned through the way he was speaking, as if he had found the truth about pricing through trial and error.
Here’s what he said (not exact wording)
“I took a look at my business and the service I wanted to provide and I figured out how much I needed to charge in order to offer that level of service. I wanted to do good work with high profit margins, so I ignored what everyone else was doing.
I don’t care how much others charge and don’t try to compete on price. I know what I need to charge in order to run my business and provide a good service. Most window contractors will quote based on peicework. They’ll quote by the window and try to have the lowest price. I don’t do this. Instead, I take a look at the job, figure out how many guys I need for how many days, and simply charge $750 per day per guy. Then, I add in the cost of the windows and mark them up 35%.
There’s just so much that varies with window installations such as siding, difficulty of access, and size of windows. If you don’t charge enough, you end up rushing and not doing a good job. So, I make sure to charge enough to do good work every time and be able hire the right employees.”
I thought that $750 per guy per day was expensive. Plus, 35% is a big markup on materials. I figured that he must have had a sweet connection with this window supplier to be able to mark them up that much. Nope.
He explained that you or I can go to Home Depot or Lowe’s and buy windows for essentially what he pays for them. But, it didn’t matter to him, in order to run his business how he needed to, he had to mark up materials 35%.
Cliff’s method of pricing fascinated me because he wasn’t competing on price like other window installers. Instead, he set his pricing up so that it allowed him to provide the level of service his ideal customers were looking for.
Despite charging often 20% or more than his competitors, he was booked out 2 months while watching others go out of business. Charging more also allowed him to pay his employees well, encouraging them to stick around.
It’s clear that Cliff’s pricing strategy works. It also demonstrates some powerful pricing concepts.
Services Are NOT a Commodity
Just because your competitors are cheap, doesn’t mean you need to be. It’s almost always better to differentiate yourself instead by offering a better service, faster service, or doing something else that’s unique.
Cliff was booked solid and received many referrals despite being significantly more expensive. His customers are glad to pay him more because they knew what they were going to get. Not only where they getting a quality installation, they got peace of mind.
Make It Worth Your Time
Often times, we as handymen will price our services based on what we think our customers will pay and often take on jobs that aren’t worth it for us. Despite how it feels at the time, this isn’t good for you or the customer.
If you aren’t making enough money to justify the amount of time and effort you are putting into your business, then you’ll probably start providing a bad service, or even give up. It’s hard to be motivated to help others when your own needs aren’t being met.
Cliff’s story is a great example of the importance of setting the right pricing structure. And, it’s just a sample of what’s to come in my new pricing guide!
What do you think?