Too many companies can fail by selling their products and services at profit margins too low to fuel long-term success. In our business, cash flow kills. Often, contractors take the reduce the price, but make it up in volume approach, then only realize they’re slowly putting themselves out of business by losing money on every job when it’s too late. Prices are set too low many times because owners and managers have a misconception that low prices are what close sales. The reality is most people are skeptical of low prices.
Karsten Solheim, the inventor of the Ping putter and owner of Karsten Manufacturing Co. related a story about a shoe repair store he ran during the Depression. When one of his competitors lowered the price of new heels to 15 cents, Solheim did the same. “The first customer that came in asked me ‘Are the heels as good as they used to be?’ Of course, I had to say “yes”. When the next two customers asked the same question, I decided most people were more interested in quality than price. I took my sign down and resumed charging 35 cents for heels. I also noticed that people would generally choose from the most expensive pile of leather on the counter”. Even during hard times, most people are more interested in quality than in price.
Studies confirm that quality is more important than price.
According to a study to determine “what buyers want,” Sirota, Alper & Pfau, a New York research firm, found the top three wants were:
- Quality products and services
- On‑time delivery
- Ethical corporate behavior
The “Lowest price” was down the list at number 25.
CONSUMERS JUDGE QUALITY BY PRICE
Less than 20 percent of the people who buy replacement air conditioning equipment are only interested in the lowest price. Most people want benefits like peace of mind, convenience, service, energy savings and reliability.
How can hvac services & products be sold at a higher price?
First, quit bidding and start selling . . .
The “lowest price” is the engine that drives new construction awards. Since many service firms evolved from new construction, “bidding” and “quoting” carried over into service pricing. Because service and replacement products provide unique benefits, consumers are willing to buy them for the value they receive (the higher the value, the higher the price).
Selling can establish value, bidding can’t.
When a “bidder” meets a “salesman” in today’s competitive arena, odds are 3 to 1 that the “bidder” will be KO’d in the first round.
The seven additional keys to selling more products and services at a higher price include:
- Provide a Return on Investment
- Present a Customized Solution
- Determine What Benefits Each Customer Wants . . . and Provide Them
- Reduce Perceived Risks
- Price on Value Instead of Costs
- Don’t Assume, Educate
- Enlist Your Entire Organization in the Sales Process
PROVIDE A RETURN ON INVESTMENT
The cost to operate hvac equipment can be a business/home owner’s largest variable expense. Nothing offers a higher, consistent, tax free return on investment than routine maintenance on neglected hvac equipment or the replacement of worn out, inefficient hvac equipment. “Selling” a return of investment is actually consulting with customers on the best way for you to decrease their costs and improve their profits.
The first step is understanding how your firm’s services and products reduce problems and cost enough to pay for themselves in a reasonable amount of time. When showing how a service agreement can provide a return in investment, it helps to know how problems affect operating cost. For instance, a 10% refrigerant undercharge increased operating costs 20%, .010 inch of dirt on an evaporator coil can reduce its efficiency 5% and some air conditioning and heating problems can double operating costs without affecting comfort.
If you’ve determined that current problems are adding $500 to your customer’s annual utility bill and the cost to correct these problems is $250, the simple payback is 6 months.
Simple payback = Cost ($250) / Annual Savings ($500) = .5 years
If you Estimated Energy Savings show that a new high efficiency heat pump can pay for itself in less than 5 years, it will provide a tax free return on investment greater than 20% per year.
One of the best ways to get a customer’s endorsement on your proposal is to know current cost of operation, figure out all the future savings and present your return on investment plan in the Universal Language of dollars and cents.
When you provide a return on investment you’re no longer selling cold air and repair, your “product” is now improved customer profits. The price you can charge for “improved profits” is not determined by your cost, it is determined by the customer’s rate of return.
DETERMINE WHAT EACH CUSTOMER WANTS . . . THEN PROVIDE IT
Prescription before diagnosis is malpractice
There are two key diagnostic tools to help you determine what each customer wants and needs:
Ask questions.
Questions help you; qualify a customer, build rapport, reveal opinions and feelings, discover opportunities and find problems of which the customer may be unaware.
Listen.
Stay alert, we think over four times faster than our customer’s speak. Listen with the purpose of gaining information. Listen for content and intentions. Mentally summarize what was just said. When in doubt, remember that what people do speaks louder than what they say.
