Undercharging for delivery is bleeding you dry
By Rich Lindblom, YSN Contributor
In my role as project manager of AVB’s new SYNC point-of-sale system (POS), I have had the wonderful opportunity to meet with hundreds of BrandSource members.
Our conversations are in part about how they do business, and one of the most eye-opening things for me is how many members (at least in my opinion) are not charging enough to deliver and install the goods that they are selling. Without naming names, I’m going to give you two of the most egregious examples I have come across in recent months.
The first one is a dealer in a rural market who was charging $10 (!) to deliver and install a new washer, including haul away and a set of fill hoses to boot. When he told me his price I must’ve hit my desk with a loud bang, because he then said, “I know, it’s too cheap, isn’t it?”
Related: Why You Need to Charge More for Delivery
So let’s do the math on this one. Even in a rural market, I’m going to assume you are paying each of your installers a minimum of $15 per hour, so $30 an hour total. Assuming a minimum of 15-30 minutes of drive time and 15-30 minutes of installation, it’s costing this dealer somewhere between $15 and $30 to deliver and install this washer. And remember, they’re also throwing in a set of fill hoses that costs the dealer somewhere between $5 and $15, depending on the type. Then of course there’s gasoline to fuel the delivery truck; supposing they use just one gallon of gas, we’re tacking on at least another $5.
All told, we’re now up to between $25 and $50 as the direct cost of installing that washer — you know, the one they’re charging $10 to install.
But that’s only the direct costs for the delivery. What about the indirect costs? Factor in all this, too: $30,000-$50,000 for the delivery truck; insurance on the truck; workers compensation insurance for the installers; general liability insurance for the company; advertising; utilities; rent or mortgage payments; property taxes; support staff; and management salaries.
The indirect costs could easily add up to another $25-$50 per appliance installed.
So, in answer to the member’s question, “Yes, $10 is too cheap!”
Now let’s move on to my second egregious example, a mid-sized dealer in a mid-sized market. This member told me he charges $60 to deliver and install a washer. It was a good number, one that is right in line with what I believe every member should be charging these days. But my happiness was short lived as the conversation continued.
Me: “How much for delivery and install it if they also buy a dryer?”
Member: “Sixty dollars.”
Me: “So, it’s $120 total.”
Member: “No, it’s $60 per delivery, no matter how many pieces they buy.”
Me (jaw nearly touching the floor): “You mean if a customer buys 100 appliances, it’s still $60 total to deliver and install them all?”
Member: “Yes.”
I think you can see how the math on this works out.
See also: Do You Suffer from Pricing Paralysis?
I titled this column “Death By a Thousand Paper Cuts” because that’s exactly what charging below cost for your services is like: One undercharge is nothing more than an inconvenience, but for some businesses, 1,000 could be fatal.
If you’re losing$15-$40 on the installation of every appliance you sell (as in the first example) and you sell 1,000 appliances a year, you could be leaving as much as $40,000 on the table annually. And let’s face it, no company can afford to do that forever.
To survive in business today you need to at least break even (and preferably make a profit) on everything you do — including the delivery and installation of the products you sell.
AVB’s Rich Lindblom is a past principal of BrandSource member Advanced Maytag Home Appliance in greater Chicago. He now brings his 45-plus years of hard-won retail experience to fellow members through his YourSource News columns and as product manager of AVB Marketing’s SYNC point-of-sale system. You can reach Rich at rich.lindblom@avb.net.
