Two Sides of Pricing

Posted by Deborah Chaddock Brown on August 27, 2009 under Greeting | Be the First to Comment

I need to move two pieces of furniture from the basement to a room on the first floor.  I can’t do it alone and my son has gone to college.  The last time I moved I used Two Men and a Truck and wondered if they would come and help me out.

Conveniently they have a location within one mile of my home.  I gave them a call and explained my need.

“Absolutely we can help,” said the cheery receptionist.  “We charge $93 for an hour.  The time starts when they leave our office and stops when they return.  Plus there is a one time $35 fuel charge.” 

Oh.

So it would cost around $130 to move two pieces of furniture. 

AS A CUSTOMER my first thought was – is it worth $130 to move the furniture?

AS A BUSINESS OWNER my second thought was “wow – they sure don’t have any problem assigning a price to their value, do they?”

Current gas prices are $2.51 a gallon.  Their round trip will be under two miles.  Even with the worst gas mileage of a large truck – they are making quite a nice profit from their initial fuel charge of $35.

It will take them three minutes to get to my home.  Maybe 10 minutes to bring up the furniture and three minutes to drive back.  16-20 minutes tops.

I’m not argueing their pricing structure or criticizing their rates – no, I’m in awe of their ability to understand the value they bring and attach a price tag.

Do you struggle with pricing your products and/or services. I do.

I think we have more of a struggle pricing services.  With products there is a clear wholesale cost and a desired margin, but with services you are charging for your time and knowledge.  Not so easy to assign a dollar amount.

Alan Weiss offers great advice in his book Value-Based Fees.  He talks about the VALUE of what you provide.

I can’t move those two desks up the stairs by myself.  Oh, maybe I can but I will most assuredly damage the furniture, the walls and my back.

Of course I could leave the desks where they are.

Alan suggests you ask the customer:

1.  What will happen if they DO hire you – additional profits, bigger market share, sales growth?

2.  What is that result worth to them?

Conversely  - 

What will happen to their business if they DON’T have the services you provide.

I haven’t get decided if I’ll hire Two Men and a Truck, but exercise of calling them has been a value lesson requiring that I hold a mirror up to my own pricing structure.

What tips do you have for pricing services?