Pricing strategies

[ComputerPro]

Pricing strategy is in our opinion by far one of the most important parts of any service business. We've seen many shops close their doors due to bad pricing policies. That being said... we were looking to increase ours a bit and I came up with and idea which expands a little on what we do now. I wondered what methods other TN members used and why.

The first thing is we try to flat rate things whenever possible. I hate hourly service. The main reason is the very same reason why products can be much more lucrative than service. The potential is unlimited. Hourly service (say $99 per hour) is capped at... exactly that, $99 per hour! When you think about it, its really a very flawed way to do things and kind of creates a lose/lose situation.

If your onsite and billing hourly then a few things happen. The first is the customer who is paying is usually trying to rush you and is worried about the time being taken, and rightfully so. At the same time you as the technician really have no incentive to work hard, fast or smart. Why? Because the harder, faster and smarter you work the LESS money you make! Think about that for a minute. The more productive you are the less you make! Talk about backwards!

In a product based business its simple. The more products you sell the more money you make period. You can sell 3 widgets and make $10 per hour or you can sell 1000 widgets and make $2000 per hour. There is no cap! Thats the 2nd hard fact. Think about that... in an hourly billing situation you can work your butt to the bone and you will NEVER, EVER make more than your $99 per hour! If you work your butt to the bone selling products you can make much, much more. One way makes you lazy, the other makes you actually want to work harder, faster and smarter.

Here is a recent example of our "product style" service pricing when we made the switch. We used to charge $99 hr for on-site service. We had a job where a client had an office with 9 PC's and a server and wanted the PC's "checked out" in their words and cleaned up. They were worried how long it would take and if it would be worth it. We told them a complete cleanup/tuneup pkg cost $99 per system, flat rate. No matter how long it took. In an instant.... bam. The fear of the unknown final bill was gone. They knew the price right up front. They even asked if they could bring in their home systems and get the same price to which we said, sure! So we loaded our remote software on all the systems, hooked the ones they brought in from home to their network and loaded the remote software on those too, then we loaded D7 and our support tools on each one. We told them to leave them on at night and I actually did the job after working hours from my kitchen table at home while watching a movie. Including the 2 extra home systems I made approx $1,100 dollars in about 4 hours ($275 an hour). And the customer was HAPPY because they knew the price up front and didn't have to worry if I was there chatting and being nice with their employees on their dime. Flat rate (selling service as a product) I believe is the future of support. I know its the only way to break the barrier of the (most you can make in an hour) problem.

So enough of our why we use flat rate gospel lol..... our new idea is this.
We used to charge a flat rate of $99 in our shop for a complete cleanup pkg. For which we would include extras like 'bring in your printer and we'll make sure that is setup also' type of stuff. Sometimes we would wind up doing quite a bit of stuff for the $99. The $99 would include dust out, cleaning etc also. What we were thinking was to have a "base rate" of $39 for any system that comes into the shop. The 'base rate' would include full diagnostics, complete dustout and sanitizing. Then the other packages/repairs would be ala carte. A complete service (virus removal, tune-up etc) would be $79. A printer setup would be $39, data backup would be $59 etc. So the base rate $39 plus a complete $79 would now net $118 instead of $99 for all. We were thinking $39 plus $99 for the complete but thought it would be too drastic of a change.
The whole goal in our opinion would be to net $140+ on just about every repair. Any less and its really hard to make any 'real money'. I mean enough to pay yourselves well, pay your employees, a 401k or similar retirement, health insurance etc.

So what pricing strategies do you use? And do you think our new price increase sounds good or bad in someway and why or why not?
Thanks in advance,
Terry

 

[neotechnet]

I agree with you there is a lot of value and benefit to project or fixed based pricing if all the variables and scope of work is known ahead of time.

Early last year I did a migration to Google Apps. It was a bit messy and complicated and I was charging by the hour. Overall it went well but the client mentioned to me that the "hours are adding up". Also in the end I gave them some free time which I hate doing.

After that I decided charging a flat rate per mailbox for a migration makes much better sense.

Of course a project / fixed price may not work in some cases but overall it's an easier sell.

 

[Digital Sage]

I think this thread warrants further discussion.

Flat rate is great, it's just a question of knowing what people commonly want and pricing that accordingly. Almost every situation is different which is why I currently charge $100 per hour onsite, with no travel fee (within 20 mins drive of home office)

I get around this with major repairs by offering free pickup and delivery. I pickup the computer, and take it back to my home office. Assess it, and give a flat rate fee. Of course travel is factored in to it.

But how do we come up with fees for all the different onsite scenarios? Some recent examples( with pricing) I've had are:

1. Install new wireless router, to extend range. Transfer itunes library from one computer to another. Run onyx on two mac for maintenance. Other random ****. ($180 - 2 hours)

2. Help with migration from outlook to gmail. Includes contacts migration, previous mail, calender sync with mac, and setting up forward from old email to new gmail (1.25 hours =$125)

3. Quick fix router that had dropped wifi for elderly lady. Go onsite and reset wifi router, and reinstate wifi security. Make sure devices work again (25 mins = $60) special rate

I guess it comes down to knowing what each task involves and how long it takes. The fear is quoting a price for a particular task to clients and then it takes a whole lot longer. They want this and that done as well, and we loose out.

I also fear overcharging people.

Really interested to know what others think. Flat rate is the way to go, it's just a matter of getting the numbers right

 

[indy-pc]

I am a one-man shop that works from my home, so I'm a mobile tech by necessity. I have a full-time job and I have only had my business for a little over 2 years. I give this disclaimer simply because my method may not work for everyone. Not everything scales.

I have been flat-rate since day one. I hate charging by the hour almost as much as I hate being billed by the hour. The vast majority of my clients and profit is from residential clients, but I do have one or two small business that I bill hourly. It gets messy for those, so I'll focus on the flat-rate.

You can check out my prices HERE. There are two things that I love about my prices: 1) It's easy to calculate--pretty much everything is $99 or $49--and 2) add-ons are an easy upsell with a very high success rate. For these reasons, my clients love it too.

As already mentioned, people like knowing what they are paying up front without worrying that someone is milking the clock to run up the bill (especially if you don't do the work on-site). In my experience, people would rather pay me $99 knowing that is the price from the start than pay someone else $99/hr even if it should only take 45min to do. Knowing the price from the start has won me more than a handful of jobs.

The upsell aspect is key. If you checked my link, you'll notice that any additional service is half off with a $99 service. I use this in two basic ways. If someone calls me to remove a virus, I can sell them on a tuneup as well most of the time because it's only an extra $25. Or, if they just want a tuneup and I find a virus during my scans, it's only $75 more to have me remove it. In either case, I make more money and they perceive it as a value.

The other key in my pricing is that parts are always extra and there is always a markup on them. I purchase the vast majority of my parts from eBay or Amazon. I can usually get a laptop power cord (for instance) for around $10 for most models and I usually charge $30 for it. I charge $75 for most laptop screens and they cost around $50. I even have a markup if someone asks for faster delivery of a part. If it costs me an extra $3 to get it delivered faster, I charge them $5 or $10. Everything has a markup!

Here's an example of a job I had recently:
Client has a laptop that isn't working right and calls me to take a look. I explain that it's $99+parts to repair it (or $25 for the diagnostic if he decides he doesn't want me to fix it once I know what's wrong with it). I diagnose that it's a failing hard drive. The "repair" is to reinstall Windows in this case plus the cost of the part--$110 for 500GB (my cost $50). He had data he wanted data he wanted backed up and restored--that's another $25. I also performed a tuneup to install all Windows updates and some basic (free) software like Foxit Reader and Avast--another $25. During the tuneup, I noticed that he could add more RAM that he took me up on--$125 for 8GB (my cost $80). In total, he paid $359, I made a profit of $229 and I spent about 1.5-2 hours working on this job including phone calls and actually sitting in front of the system working on it.

In short, I feel that a flat-rate pricing is the best way to go. There might be some difficult jobs that take longer to do so your per hour rate is lower, but with good processes and decent automation, you'll come out ahead much more than you don't... all while the client has more trust that you aren't trying to rip them off.

 

[ComputerPro]

pricing

You sound a lot like us Indy lol.
Where do you get your laptop screens at? $50 seems like a good price if most are in that range. We still use DVD super (username) from the old, old podnutz days lol. I like having one trustworthy place to get them instead of price shopping for each order.

Your pricing sounds like its really working out for you and seems like a great strategy.

Take care,
Terry

 

[Rosco]

i try to do mostly flat rate with pickups(i am also mobile working out of my house). Anything onsite is always by the hour. For most residential stuff that i pick i cap around 100. I can work on multiple computers at once so its not a big deal. Anything on site they will pay hourly. I can only focus on that one person so they pay accordingly. Anyone with a problem with my onsite rates can call up a 10/hour craigslist pizza tech.

 

[indy-pc]

Where do you get your laptop screens at? $50 seems like a good price if most are in that range. We still use DVD super (username) from the old, old podnutz days lol. I like having one trustworthy place to get them instead of price shopping for each order.

I get them from eBay. If I had my choice, I would get them from a single vendor outside of the eBay umbrella where I could negotiate on price or shipping. But, I don't have the volume, so I just find a top rated seller on eBay with the cheapest price and free shipping. If possible, I look for one that is close by to ensure delivery time is kept to a minimum as much as possible. That's my strategy for pretty much all of my eBay part purchases.

I used to use DVDsuper whenever possible despite her prices being higher than most because of the ringing endorsement by the PN guys. A few months ago, though, I had a screen that was damaged during shipping (not her fault) and I needed to get a new one in ASAP because the client was waiting. Rather than wait for the damaged one to get there and have the replacement shipped at the same slow speed, I talked to her and ordered another screen with expedited shipping. When the dust settled, she refused to refund the extra shipping cost because it wasn't on the original purchase. I felt that was poor customer service given how many screens I had purchased in the past. So, my loyalty is no longer exclusively with DVDsuper.

@Rosco:
I prefer to do pickup and delivery for all of the reasons you gave. Plus, I don't like having someone watch over my shoulder or distract me while I'm working. Rather than have an hourly rate, though, I have a $25 on-site service fee that gets tacked on if they insist that I work on it there. Since I won't do something like an OS install on-site, I'm usually only there for an hour at most. In those cases, I justify the loss of multi-tasking because of the extra $25 and saving me the extra round trip/scheduling hassle. I don't get too many of those, so it's not a huge deal.

 

[cypress]

This has been a great thread to read from. I been struggling with doing Hourly for Onsite for the Residential side. Reading this has showed me their are some strategies to work out. I like the insight and the point of view.

I think doing Flat Rate will help me most when accessing the needs of my clients.

 

[ComputerDave]

We have free consultation and free estimates, which is different than anyone else here, but it’s meant a 30% top line increase each year that we have been in business. Basically that means we’ll check out your system from head to toe for free, and give you a free estimate. If the system is worth repair, most everyone accepts the estimate. We advertise “Rates as Low as $35”, but that just gets people through the door. $35 will get you a password reset or maybe the labor for a RAM install. But otherwise we do flat rate pricing in the shop. $145 OS reinstall for example, or $227 new hard drive. $105 screen replacement ($50 our cost) plus labor, usually $35-$50. On Site is $95 per hour.

 

[redmon]

The whole goal in our opinion would be to net $140+ on just about every repair. Any less and its really hard to make any 'real money'. I mean enough to pay yourselves well, pay your employees, a 401k or similar retirement, health insurance etc.

We get there by up selling from the moment they checkin to the time they check out. We have three set places we upsell to them: checkin, during the quoting phase, after the job is done. Even sometimes at pickup. We have instituted these up sells as standard procedure. It is better to ask everytime then ask when you this it's a good idea. I have learned it is impossible to judge what people might do. Just like they do at McDonalds, "would you like fries with that". Since we started asking everyone everytime our up sells are up 500%. All of our upsells give value to our customers, everyone wins. We have a good system which I think is effective but not pushy. Some examples:

At checkin, if a client asks for our advertised virus removal rate of $79, we will ask if the want to upgrade it to a tuneup for $30 more, more than half say yes. Then we say to get the lowest rate, we will start on your job within two business days, if you are in a hurry, we can upgrade your service to express (it is a great value to someone in a hurry), this puts you in front of everyone else. (this is $50)

During the quoting phase after running a full diagnostic we have all kinds of value added services to layer together. One of out favorites is on any hardware job like a broken screen or broken hinges, we will ask if they want a reduced price tuneup for $60. We charge $79 for a broken profile service fix, we will also ask if the would like a reduced price tuneup for $60.

After the job is finished we will ask if they would like a suggestion on keeping their files safe. If they say yes, we will reccomend an external hard drive with us setting up a custom program to help with the process. We make $80 on this. Then the easy AV upsell.

We are considering a fourth place to upsell. When clients pick up the pc, sell them one hour of prepay remote service. We have done this for a few clients but have not yet made it a policy.

We have a restaurant in our town, a franchise, called "whisky creak". They up sell the crap out of everything, I know I'm being worked, but keep coming back because the experience is great. They do a wonderful job at making my dining experience nice. We use the same philosophy, we up sell alot, but give our clients great service, high quality control, we try to dazzle them. They keep coming back

On a side note we are up 30% over 2012. This year, January is starting strong , I suspect great growth this year also.

 

[OCWI]

Ahh the age old pricing ? This is something that we have struggled with as well. We finally made the decision of $87.5/hr in shop, 120/hr offsite - simple and easy. We do flat rate for website stuff but I wont get into that.

You make good points for flat rate. I by no means am preaching hourly structure. However I think we share a common and very critical conclusion. Average bill around $150, period. $150 the customer is happy, and that's enough room to atleast make a business around. Im by no means rich however, so take it for what its worth.

 

[Digital Sage]

Rich isn't just money! I prob make about 50k per year but
I have lots of free time. I know people who work their guts off -
60 hour weeks and earn $120k. Money is useless if u don't have the time to enjoy it

 

[redmon]

Rich isn't just money! I prob make about 50k per year but
I have lots of free time. I know people who work their guts off -
60 hour weeks and earn $120k. Money is useless if u don't have the time to enjoy it

I agree. This year I was on track for a six figure income, but to do this l was in a position of having to work 45 hours per week(that parts not bad), more importantly I could not take a vacation. That was not the business I want. A few months ago we hired a second full time employee with the hope of building a business that will run without me having to be there as much. Between the second person on payroll and the loss of business do to giving up control to others, my income went down quite a bit. The goal this year to get my income back up and take some time off. 7 years without more than a 3 day weekend is to much.

The change is a bit stressful, but I am enjoying the process.

 

[solg]

Perhaps also consider your business plan objectives and goals when calculating pricing. When I launched my first computer repair business, I didn't understand or know much about business , my mentor had to break down why it would be difficult to grow my business if capital were needed from outside sources using an hourly business model.

Whichever model you decide to follow, always consider adding some sort of recurring revenue income producing products/services. This will help maintain equity and can allow for immediate growth should you seek to use that equity.

 

[Evernet]

Flat rates are great, I use them, but it does depend on your market. My target demographic are students, so by necessity they NEED to know how much it's going to be before work begins.
I've found doing some consumer research has been key to setting my pricing points. In 2010, the average price point students agreed on was £30. That same study taken again in 2014 is £36, meaning I can comfortably move the price point without enraging customers.
Asking your customers how much they would pay, collating all the data and taking an average might just show you if you're under or overcharging.

 

[gatestechsol]

I offer both hourly and flat rates (for my pickup/dropoff service since I'm a mobile tech too) but I advertise them different. I offer a hourly rate for residential consumers at $75 per hour if they need a service done right then. I know many of my services take about 1 hour to complete and many others 2 hours so I can tell my customers they will have a $75 to $150 job without parts. But I also tell them if they don't need the service done right then and can wait 3 days for repair, then I offer them my flat rates.

 

[SpaceSquad]

I offer both hourly and flat rates (for my pickup/dropoff service since I'm a mobile tech too) but I advertise them different. I offer a hourly rate for residential consumers at $75 per hour if they need a service done right then. I know many of my services take about 1 hour to complete and many others 2 hours so I can tell my customers they will have a $75 to $150 job without parts. But I also tell them if they don't need the service done right then and can wait 3 days for repair, then I offer them my flat rates.

This is exactly my system. If something is time consuming I will offer flat rate to save them some cash. If they absolutely want me to spend 3 hours onsite, that's fine too...they will just pay more.

 

[PCX]

On site I suggest charging by the hour for obvious reasons outside of your control. I understand your point about being capped out at $99 an hour, but you really aren't. When I was a contractor, we charged a certain amount per job, usually by the square foot, but for jobs that had lots of variables like remodels we would charge by the hour per head (of course this is not how it looked to the customer, but that was the basic formula). This means that instead of making $100 an hour, I could be making several hundred dollars an hour minus labor per hour. Of course this all depending on how many heads I had working for me and how many jobs I had going on at one time. My point is this, when charging by the hour, if you are not the only one doing onsite jobs, then the sky is the limit. 10 people working at $99 an hour is $999 minus labor per hour.

Anyways, as for flat rate pricing in shop, I honestly think your rates are too low. I know that rates are based on each area, but it still seems that your pricing could be higher. For instance, $79 seems like a reasonable amount for a tune-up alone. A virus removal could even be $100-$125 or more by itself. That right there is $100 plus more per job. Again, I know that we are dealing with different markets, but it is something to think about, shoot, even try it. Try it out for a month, honor legacy pricing for previous customer if you like, but start charging way more for new customers and see what happens. You will lose some customers, but you will make more on your bottom line. If you find that business is cutting back way too much AND you are NOT making more money, then cut the prices back a little, not all the way, just a little. Keep adjusting till you find that sweet spot. It is hard to tell what your market can handle till you actually try. Besides, if you have a good reputation, then chances are people will pay the higher prices based on that alone. Again, I understand that we are in different markets, but we charge $100 for a virus removal and $75 for a tune-up $150 for a reinstall. On top of that, we usually sell Kaspersky for an additional $75-$95 ($45-$65 profit) making our average ticket for those repairs between $225 and $270. This is not including all the up-sells we do on other repairs like screen replacements which leads me to my next point.

As mentioned before, up-selling is key to increasing your bottom line. We up sell in stages. When the customer drops off, after initial repairs, after secondary repairs and at check out. Here is an example of what happens A LOT.

Customer comes in for a 15.6 screen replacement. We charge $175 for the parts and labor ($100 for the part and $75 for the install). Once we have completed the repairs we do a virus scan and system check to see if they need a virus removal, tune-up or both. In many cases, customers also have viruses and in most cases they at least need a tune-up and 9 times out of 10, if they need a virus removal, they also need a tune-up. Once we have completed the initial repairs and we have done our scans, if the customer needs a virus removal and tune-up, we sell them on the service. Guess what, probably 8 out of 10 go forward with those services. This makes our ticket between $250 and $350. Once we have completed this, we then suggest that the customer get a good AV so that they are not having to deal with these issues again in the future. Again, about 8 out of 10 people will make this investment for an additional $75 to $95 dollars making our tickets between $325 and $445.

Preposterous! you say? It happens every day and it happens a lot. Our average ticket is around $250 to $400 per customer. Sure, we get tons of $150 - $250 tickets as well, but we would not even get that if we did not up-sell. Also, even when a customer says no to a service or product, my techs are trained to ask again at check out and you would be amazed at how many times customers will change their mind an leave their computer for further repairs or a AV install.

Oh, and some of you may be wondering where we get $75-$95 for av. Here is the break down.

$60 for KIS 1 user 1 year
$80 for KIS 3 user 1 year
$15 for install and 1 year of troubleshooting support for KIS.

We never quote $60 or $80 for the AV. We ALWAYS quote $75 to $95 and we make sure to mention that it includes the software, install and 1 year of troubleshooting support of the software.

AND (sorry, I am kinda going off the top of my head here) another thing to remember when selling or up selling is to give the customer and A, B or C choice instead of a yes or no choice. This does work and it will also increase your bottom line.

By the way, this is all done in a market that was saturated with price warring competitors (which are mostly all out of business now) and where my main competition does virus removals and tune-ups for $65 . . . sadly, they have now resorted to offering uhaul services out of their parking lot . . . I don't know about you guys, but usually when we see businesses (who do not offer services or products that are remotely related vehicles or vehicular repairs) offer uhaul out of their parking lot, it is usually a sign that the company will be going out of business soon.

 

[redmon]

Very similar to our strategy(our average ticket price is lower, but we get quite a few in the $300 range). One difference is we tend to discount add on tuneups with hardware repair. I rationalized it because the time spent at check in, diagnostics, evaluation, check out, did not have to be done again. So a tuneup add on for $60 may have a better margin than a standalone tuneup at $109. We may have to rethink that pricing along with maybe adding on a labor for our virus insralls.

 

[aweston]

the loss of business do to giving up control to others, my income went down quite a bit.

What do you mean by this? It doesn't make any sense to me. How do you lose business by giving up control to others? What does that look like?

To OP:

I think you'll be hard pressed to find someone that doesn't agree that pricing is one of the biggest challenge business owners face. Personally I think focus on pricing is the wrong focus. I think focusing on what you deliver is the right focus. Then it simply becomes a matter of making sure the intake is greater than the outlay so you can accomplish what you need to accomplish to ensure that you can continue delivering to others.

I've come to learn over time many, many things. I can share a couple of them here. First, if you're paid for your time you will never get the large payouts you want. You must get paid for results. If you pay yourself for your ideas and what you think you're worth and not what you produce, you will go bankrupt. Pricing is ultimately irrelevant.

I think a great example, that I've used before, is BMW and Hyundai. If everyone was focused on price BMW would never sell a car. So ask yourself...what is it that BMW actually sells? Believe it or not...it's not cars.

There's more, such as mindset and behaviour patterns, customer perceptions, types of marketing, energy balance, leadership, etc, but that's a good start.