Most of us would balk at paying that much of an increase for gas, a favorite restaurant, even golf! The bottom line is, if the markup results in 16.67% less target volume, you make less money than originally planned.
I know several companies in the post-2001 period that held their margins at 40% and lost 40% of their business volume, presumably not jobs for repeat clients and good referrals. Those that dropped their margins 5% actually did the same amount of work as planned, reducing their profit target 5% for the year. That zeroed out the net profit, but covered all overhead.
Those that kept their margins or raised them fell short of breakeven volume and lost money, lots of money. We should always price for a 10% net profit target, providing some wiggle room for slippage and inelasticity.
Give Your Clients Solid Reasons to Choose You
Your old clients and their referrals need a reason to choose your firm as you raise your prices to sustainable profit levels. Be sure you offer them a clear reason, other than price, to use you. Some ideas include:
- Extended warranty
- Free maintenance
- Design or selection services
- Awareness and use of higher quality materials and techniques
Acknowledge referrers with gifts certificates, cards, flowers, etc.
Know When to Fold Them …
When times are bad — closing ratios are slipping, leads are decreasing, fewer clients are willing to be references — you need to add a dose of reality. Reduce your prices, but only to advertising source leads, when you notice call volume falling and you feel that price is the only way out short-term. Begin raising prices to reach profitability when your leads are seasonally strong, your niche is solid and less competitive and you have developed a unique selling proposition, etc.
Know When to Hold Them …
Hold prices when the competition is no different than you are, your clients are not raving cheerleaders for the quality of your work and you aren’t experiencing an increase in the quality and number of leads.
The following simple tips should help you navigate your course of action:
- Never give “discounts” — instead pull items out of a contract.
- Always get top dollar from your returning clients; you have earned their business and they are happy with your value proposition.
- Try to sell value — emotional benefits — not price.
- Do things other contractors are not doing, or not doing well.
- Take sales training; it is not a dirty word.
Alan Hanbury, CGR, CAPS, treasurer of the House of Hanbury, Newington, CT, immediate past chairman of the NAHB Education Board and past chairman of the National Remodelors™ Council, has given many presentations at local, region and national home/remodeling shows on controlling overhead, planning for profit, cash flow and advanced financial analysis. For more information, contact Hanbury via e-mail.
University of Housing Offers Courses and Designation Programs
The NAHB University of Housing offers a variety of business management courses and professional designation programs that set builders and remodelers apart from the competition. For a complete list of current offerings, click here.
Nominate the Best of the Best for Remodelor™ of the Year
Applications for the Remodelors™ Council’s most prestigious awards program, the Remodelor™ of the Year Award, are now available online at www.nahb.org/remodelors under the Awards section.
The Remodelor™ of the Year Award recognizes exemplary NAHB involvement at any level, superior business management and an outstanding contribution to the remodeling industry. Councils should nominate individual remodelers, but the nominee must write his or her own entry essay.
The winner will be announced at the Remodelors™ Council Gala during the 2004 Remodelers' Show in Chicago (Oct. 8).
Local Councils Honored with CADRE Awards
The Council Awards for Demonstrating Remodeling Excellence (CADRE) is awarded to local Remodelors™ Councils for superior member service in the categories of:
- Membership Recruitment & Retention
- Community Service Project
- Public Relations & Promotion
- Outstanding Associate Member
- Member Service/Education
- Government Affairs/Legislation
- Outstanding Council Chair
- Outstanding Executive Officer/Council Coordinator
Entries are available online at www.nahb.org/remodelors under the Awards section and due by Sept. 3. The winner will be announced at the Remodelors™ Council Gala during the 2004 Remodelers' Show in Chicago (Oct. 8).
For information, e-mail the Remodelors™ Council or call 800-368-5242 x8216.
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