Are you charging what your service is worth?
By Jack Miller, Service Company Solutions
The last in a three-part series on improving service profits through greater efficiency.
“My customer would never pay more!”
“I have to provide service because I sold the customer the appliance.”
“Service is a necessary evil to support my sales.”
“I could never charge Blue Book rates in my market; my customers would laugh me out of town.”
We hear these excuses all the time. We have been selling and supporting The Original Blue Book Major Job Rate Guide for many years, and we have listened to all these objections and more. The truth is that professional rates work in all markets. Companies that adopt the Blue Book pricing model on average see a 25 percent increase in service revenues. You can make adjustments for your market, but if you are not using professional job (flat) rates, you are doing a disservice to your business and your customers.
Here are some challenging questions for you to ponder:
Are you charging less than $100 to diagnose an appliance?
The average national cost of running a service call is $105 to $115 without parts or profit. If you are charging less than this average, you are most likely losing money in your service operations.
How do you know your customer won’t pay more? Have you tried?
The biggest obstacle to charging more money isn’t the customer; it’s usually a business’s mindset that the customer won’t pay more. The reality is if the customer complains about the service charge before you have even gone out to their home, what is the likelihood they will spend $250 to $300 on a repair? Sometimes a higher service charge will weed out the tire-kickers and time-suckers that are not the customers you want in the first place.
Let me recommend you try higher pricing for a week and see if you get customer pushback. Let’s say you run ten calls in one day. If you raise your rates by 20 percent, and you find that you lose one repair out of those 10, you are still 10 percent ahead, and you can now fit one more customer into your schedule. Can you count on that lost contact not having been repaired? Probably, so you are now dollars and time ahead.
But if three customers choose not to repair, then you need to revisit the pricing, as it may indeed be more than your market will bear. But if you don’t try, you won’t know. Remember, you can always lower it.
Do you have other national service companies in your area? Are they charging more than you? If so, is it because they provide a better service than your company?
There are many fly-by-night service companies out there that charge way more money, and they get it. You provide professional service and give your customer local resources to support them. There is a considerable value to this which usually isn’t taken into consideration. Can they get that from the big-box stores or the national companies? Charging for the value that you bring to your customer is not a bad thing.
Here’s where we are going with all of this: If you are a servicer or self-servicing dealer, you should be treating your service operations as a stand-alone service business. If you are not making money, you should be looking at why. Are you charging appropriately?
If you see it as a cost of sales, let’s look at that a little closer. If you sell an appliance for $500, what is your profit margin? How much do you clear after you pay all overhead? Now, if sales require a service call of any sort, you have just taken an additional $105 out of the profit. If you are not charging for this service, is this a service department loss or a sales expense?
All of these things should be taken into consideration as you look at your service department.
Finally, we believe that charging “time & material” (i.e., hourly rate plus parts) is the wrong approach for pricing repairs. For years it was the standard pricing model for service, but here’s why we feel it is outdated and not fair to the company or the customer.
- When you charge by the hour, and you have an efficient and skilled technician who can repair the job faster, you charge less money. When you have a green technician or a slower technician, you are overcharging the customer.
- The liability, training, and tools required for each appliance repair varies. If you are charging by time, then the 15-minute job on a dryer is the same price as the 15-minute job on the Sub-Zero refrigerator. Yet on the dryer, your liability is typically a few dollars, while your liability on that Sub-Zero is thousands. Should those repairs be priced the same?
Using a job-rate pricing system like the appliance Blue Book takes all these factors into consideration. Even if you don’t use our pricing, you shouldn’t continue to use the outdated model of time & materials. It is a disservice to both you and your customer.
Jack Miller is a managing partner at Service Company Solutions (SCS), creator of the iconic Blue Book Job Rate Guide. Like the Blue Book, the Bedford, N.H.-based software and resource development company tailors its tools and products to the appliance repair industry.