Tracking the Relationship Between Customer Retention, Pricing, Price Complaints and Closing Rates
Over the past 16 years, Contractor 20/20 has done consumer surveys for more than 500 plumbing and HVAC contractors… and I can say for a fact that most have been underpriced. We have been tracking the relationship between customer retention, pricing, price complaints and closing rates. We have been tracking the difference between the high profit contractors (that stay in business long term) and the low profit contractors (that fail after just a few years).
Here are some facts that I can share:
- The free market does not forgive inefficient, overstaffed, or higher than normal range overhead companies in the long-run.
- The free market does not forgive bad service in the long-run.
- The free market does not forgive bad quality of workmanship in the long-run.
- Across the board markups do not work to maximize profit; you need to look at closing rates service by service and product by product.
- Companies with better sales training can charge more without hurting closing rates.
*Almost all companies that have been around for more than five years DO NOT have major efficiency, staffing or quality problems… Most companies are good at doing the hard things like doing a quality job and not leaving a customer behind who would use them again.
But at least 44/50 of the last companies we surveyed were underpriced and operating at lower than necessary profit levels – only TWO were overpriced and heading for a cliff.
MY POINT: Most plumbing and HVAC contractors are underpriced.
Companies that are priced too low are anemic in their profits and ability to market. Because of the short cash, they cannot generate enough in new sales to keep up with increasing overhead. They are too often on economic downturn – one accident or one lawsuit away from going out of business. They cannot hire the best people or acquire the best technologies. The owners will retire with less than they should. Their families will live under unnecessary stress that will most likely even destroy marriages. The owners will work too hard and die too young.
More often than not, they may go our of business or sell their customer list in the end for pennies on the dollar to someone who is not afraid to make the necessary and appropriate changes.
Correct pricing is not the same from one state and one city to the next due to labor cost variations often tied to general cost of living in that area. Correct pricing also varies according to the level of service you give; customers expect to pay more at the Hilton than at the Super 8. But not every town has a Hilton. That’s because not every town has the right demographics of the right population in large enough numbers to support a Hilton.
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There are defiantly statistical relationships that high profit companies share in the area. Relationships between: Customer retention, pricing, price complaints, closing rates and market share. But here is the hard truth… The experts cannot talk about this in group meeting or group forums. That could be seen as PRICE FIXING and that is against the law and against the rules of every forum, including this one.
The only thing I can say is that the high profit recipe exists and I can invite you to study your statistical relationships between customer retention, pricing, price complaints and closing rates and experience for yourself.
I would like to know if you agree or disagree with my conclusions and to encourage all to keep a close watch on the numbers they should be tracking.
At your service,
President of Contractor 20/20
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