Do Your Clients a Favor and Charge Them More
Selling value over price is a technique that will ensure your company’s focus remains on delivering the best customer experience.
You should be charging more for your work. That is a bold statement, but let me explain why you would be doing your clients a favor by increasing your pricing.
A Simple Taste Test
A study by Stanford and Caltech found that increasing the perceived price of a bottle of wine increased the actual and perceived enjoyment that the tasters derived from drinking the wine. That may be fine if you are selling wine, but you own or operate a construction business. Your business is vastly more complicated than selling fermented grape juice. But stick with me.
As Alex Birkett states in his article “How to Increase Perceived Value (and Charge More),” similar studies have shown that you can increase your product’s perceived value without actually increasing its objective value (costs included in making it). You just have to change people’s perceptions.
I know what you are thinking. “If I increase my prices, then I will lose some clients.” Yes. You are correct. If you increase your prices, then you will lose some clients. That sounds really bad until you look at the math. Here’s an example: Let’s assume that last year you performed 100 projects. Each of the projects was priced at $1000. Your top-line revenue was $100,000 for last year:
100 projects @ $1000 per project = $100,000 top-line revenue.
You have decided that next year you are going to double your price and charge $2000 for the same type of projects you completed the previous year (see the postscript).
You can now afford to lose 50% of your clients and still make the same top-line revenue because you doubled your prices:
$100,000 top-line revenue / $2000 per project = 50 projects
And since you are now going to be doing 50 projects per year instead of 100, you have six months of the year that you don’t have to do any projects at all. That doesn’t sound so bad. But here’s the kicker. You aren’t going to lose 50% of your clients, because many of your clients didn’t buy from you because of your price. They bought from you because of you. They bought from you because you came highly recommended, they really liked your work, or they trusted you as an expert in your trade. You only think they bought from you based on your price because that’s the only thing you sold them. If you would have sold them on your value, then they would have bought that also.
Back to the example: If you sell only sell 50 projects at $2000, then you have half of your available time remaining in the year to perform more work. Let’s assume that you sell another 10 projects at the new price point of $2000 per project. You just increased your top-line revenue by $20,000.
60 projects @ $2000 per project = $120,000 top-line revenue
You can actually make more money ($120,000 vs. $100,000) by doing less work (60 projects vs. 100 projects) and still have time available in your schedule. Up to this point, you have just been doing math. You doubled your prices, lost a few low-paying clients, and still came out ahead. But in order to sell your value instead of your price, you can’t just double your price. You have to be willing to make two operational changes.
Operational Change #1
You have to change the level of service that you provide to the clients who are willing and able to pay for your value pricing. You are going to have to implement some systems that deliver the value you are selling at every step. Here are some examples of the systems you will need:
- Client prescreening/qualifying process
- Communicative sales process or funnel
- Comprehensive planning and design process
- Accurate and timely proposal/quoting process
- Project scheduling procedures
- Contract execution and invoicing system
- Change order and document-control system
- Production/operations procedures
- Project marketing system
- Warranty program
These systems don’t have to be complicated, but they do need to exist. They need to exist because the type of clients who are willing and able to pay your value pricing will expect it. They will expect it if you sell it, and when you sell it, you can charge more for it.
But designing, implementing, and executing these systems will take time. If only you had more time to serve your clients by delivering this type of experience. But wait! You do. Remember the example above. You reduced the number of projects you needed to perform in a year by 40% (from 100 projects per year to 60 projects per year).
Operational Change #2
Increasing your available time to deliver this level of service is the second and equally important operational change you need to implement. This should be simple to do. Notice that I didn’t say this would be easy. Change is never easy, but it can be simple.
Now that you have created time in your schedule to focus on fewer, high-paying clients, you can spend less time running around trying to manage more jobs with lower margins. You can focus your attention on fewer jobs with higher margins, and you can afford to spend some capital (both financial and mental) on your clients.
(Financial capital) You can pay one of your employees to show up early to meet the plumber, or stay late to make sure everything is organized and locked up.
(Mental capital) You spend some time in the early morning hours planning so that you and your team are clear on the objectives for the week.
(Financial/mental capital) You can afford the time to stop by the florist and pick up a bouquet of flowers for the client along with a nice handwritten note expressing your gratitude for that client. (When was the last time you did this for your clients? Why not? Probably because you just didn’t think about it. Now you can think about this kind of stuff because you have more time.)
Making these changes in your business is not completely self-serving. Your clients want to feel good about the purchase they made. When you deliver on the value that you sell by making the operational changes listed above, your clients will love you for it. Create this kind of experience for your clients by charging them more. You’ll both be happy that you did.
I do not recommend doubling your prices on your next project. I am merely using that as an example to illustrate how to develop a pricing strategy. Developing a pricing strategy that works for your company and your clients is an iterative process. You should test and evaluate as often as possible. You may want to gradually increase your pricing over time as you develop the systems listed above. Also, this concept may not directly apply to all your clients and for every type of project. But developing a strategy that sells value over pricing is a technique that will ensure your company’s focus remains on delivering the best customer experience.
More on Building Business
Understanding Your Balance Sheet and Profit & Loss Statement – The best way to predict the profits of a construction business is to review the financial statements each month.
Forecast Construction Revenue – When you can use the Schedule to forecast the revenue of the production work on a weekly basis, then you will be able to adjust the activities that maximize your weekly revenue.
Building Business – The foundation for your bottom line.