Price Increases

Discussion in 'Business Operations' started by SprinklerGuy, Nov 25, 2001.

  1. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    Well, I have been kicking around an idea now for a little while this might be long...sorry in advance. Thanks in advance for help too!

    My pricing structure has been the same now for about 14 months. We are primarily a service type business like a plumber. You know, you call us and we perform a service, sprinkler repair. We charge a service call fee which includes 1/2 hour labor and then we bill for labor as we use it after the first 1/2 hour is up. Plus parts of course.

    I made some calls disguised as a customer and here is what I found:
    7 companies told me up front their service charge and add'l labor

    Out of those 7 companies, 3 were more than me and 4 were cheaper or the same

    5 companies had answering machines in the middle of the day

    2 companies would not give pricing in hourly rates but the repair I asked about they said they would charge about what I normally would also. But they said if it was more money they couldn't really say until they were into the repair a little. Meaning they would have to come to the house and start without a clear idea of cost to me the customer. Made me feel uneasy.

    Here is my question? Should I raise my rates a little? If so, should I raise just the service charge or labor too? Most of my jobs are done within the first 1/2 hour so I could raise the service fee and leave the labor alone and not really get hurt by that. Or I could just raise the cost of parts across the board and get the extra that way. Or I could stay the same.

    Any suggestions?

    MATTHEW LawnSite Senior Member
    from NE OHIO
    Messages: 665

    If you must raise prices you should leave the service fee alone. Raise the labor rate moderately and the parts a little bit. Service fee will get them in the door, so if someone is price shopping, they may base the decision on that amount alone. Parts prices may be easy to obtain, so go easy on that one. As for me, my labor rates are going up. I did not raise too many last year but I did increase service and result expectations. Everything else is going up as well.
  3. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    I agree to a certain extent. I do however see the value in raising parts prices. Some of our parts prices have been the same for years.

    As a business doing approximately 10-15 invoices per day, even raising the "supplies" which go on every invoice that uses glue, teflon etc., by 2 bucks would increase the monthly take 400-600. That goes right to the bottom line and into my pocket without harming the end user much.

    My biggest problem is the stocking of parts anyway. I stock many parts on many trucks and that outlay has begun to take its toll on the cashflow. If I need to raise prices to help that, then perhaps I will.

  4. Matthew Morgan

    Matthew Morgan LawnSite Member
    Messages: 45

    I would deffinately raise parts prices. Do you have a "misc." fee in your billing? A contractor does around here, (not irrigation), but this could cover things like teflon tape, pipe glue, interest on money that is out "riding around in the truck" so to speak. this guy has figured a flat percentage that he tacks on every bill to cover thing like this. Maybe that is an area that could help cover the cost of parts on the truck or on the shelf.

    Personally, I would not commit to a price over the phone withour looking at the problem first hand. I would not get to uneasy about it. The customer can sometimes "candy coat" a problem to lock a contractor in a price and hold him to it.

    Good Luck

  5. gusbuster

    gusbuster LawnSite Bronze Member
    Messages: 1,932

    I wouldn't be afraid to raise any of your fees as long as it's only moderate.

    I know what you mean by stocking parts all the time. You need to have a part when on the job, not having to go to the irrigation house or yard to get a part. This does hurt your cash flow alot of times if you don't have an in-house credit line with a irrigation house.

    Myself, if it's not a regular item,(ie,pvb valve, timer ect..) I do charge for the time it takes me to purchase the item. If it is a part that I should have with me though, I don't charge for my time to get the part.

    The guys that charge more than you, are they getting the work? I would try to find out why they are or are not getting the work. You said you were in the middle when it comes to prices. Try to get to the "High Middle".

  6. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Messages: 1,712

    Tony, what is the $ for the first half hour?

    What is the hourly rate?

    How do you round the fractions of an hour?

    Do you currently have a "misc supplies" charge on each repair? If so, how much?

    How many hours per day do your guys have on the clock?

    How many 1/2 hr calls do they do in a day?

    How many extra hours do they bill beyond the minimum 1/2 hr?
  7. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    Nice to see you again, hope you are still on when I finish this.............

    Right now we are 55 for first 1/2 hour and 55 per hour billed in quarterly increments

    We currently charge a misc. charge on all jobs that use glue and it is $3
    If we use solder/or torch etc. the charge is $5

    One repairman is a salaried employee that works between 8-10 hours average per day. He seems to whine when it is more than that.............never whines on rainy days of slow ones....imagine that. The other is a sub who charges me a percentage of the labor, right now he gets a 40 minimum charge for the first hour so I make 15 unless he stays the whole hour than I get more. I also retain the profit on parts. He drives his own vehicle, has liablility insurance, work. comp, etc. He is mainly the guy though who bids the lighting and landscaping and makes those jobs happen. He does 2-3 repairs per day on average only 3 days per week.

    as for the breakdown, a lot of our work this month was bid work or lump sum, but so far in November up to the 19th this is how it broke down:

    61 total calls of which 36 were service call only
    and we sold 22 total extra hours....roughly......sometimes the parts get added on to the labor due to easier math on invoice!

    So it appears that the greatest benefit to me would be to change the service charge but not the labor rate???? Perhaps make the misc. charge higher? C'mon fox......let the wheels start turning.
  8. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Messages: 1,712

    I think there are several things to check on and consider. If you did 61 calls that is equal to 61 hr. 1/2 hr travel & prep + 1/2 on job time in my book. 22 extra hr = 83 billable hr, in my book.

    How many sub hours and employee hrs did your purchase to produce 83 billable hrs?

    I can't imagine that your true overhead as defined by Vander Koi or Huston can be much less than $10/ man hour payed for by you. That would only leave you with $5 per hour profit on his billable labor. That's not much.

    This year I started looking at profit per man hour rather than profit margins. Margins can be very deceiving in that they look good but can still return low profit per hour. I set my minimum return on labor at $10.00/hr which is not real fat. Sprinkler parts can increase that but they are hit and miss. Using lawn materials such as fert, seed etc I aim for $20-$40 profit/man hr. I seem to be competitive and I'm getter a better bottom line.

    You have to eliminate any labor leakage if you find it. By that I mean if you pay men for 80 hours you have to see 80 billable hr. 40 svc call + 40 extra or 65 svc calls and 15 extra. Maybe even more billable than paid.

    I do this. Service call (come to the door only) = 1/2 hr at billable rate. The clock starts when they hit the job, 1/2 hr min. All time is rounded to next higher 1/4 hr. 23 min = 1/2 hr, etc. With this method you should be able to bill as many or more than you pay for.

    If you are logging svc call as 1 hr from leaving the previous job plus your on job time your missing out. My way, 8 min of travel = 1/2 hr worth of dollars. If we're there 20 min we're 10 mi to the good. This is new this year and i like it.

    You may not be recovering overhead the way you should through the entire operation. Maybe installs aren't pulling their share of the load. :blob3:
  9. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    you thought you rambled.....hold onto your hat and pay attention so as not to get confused by my rambling!

    you said:I think there are several things to check on and consider. If you did 61 calls that is equal to 61 hr. 1/2 hr travel & prep + 1/2 on job time in my book. 22 extra hr = 83 billable hr, in my book.

    Yes you are right but there are several other things not listed as I said before we do some stuff in lump sum such as: timer installations, valve manifolds etc. Because of this the hours may SEEM TO BE LOW, BUT THEY ARE NOT.

    I do things a little different, not better, just different. Here it goes:
    I know my cost of doing business down to the minute but I prefer to track it by the day not by the hour BECAUSE I have a salaried employee and a sub, both of which work funky hours.

    This cost of doing business includes my salary and all costs except for parts which vary day to day due to the nature of the business. I could average it over the course of a year, I choose not to.

    Now that I know my costs I track our revenue on a daily basis. This is how:

    I take my repairman.......I add up all the labor he billed plus the profits on the parts and put it in the pot

    I take my install crew and figure out their costs versus the job total and add that to the pot

    Then I take my sub and subtract his price and put the rest in the pot along with the parts profit

    Then I add this up, as long as it is higher than my daily costs, I am a happy guy. It usually is. On average I usually do not come in under, usually even or above.

    I do the same as you which is charge a full hour for the first 1/2 hour then 1/4 hour increments from then on. Today the repairman billed 7.75 units (svc calls + labor hours) and he worked 9 hours. That's pretty good considering 175 minutes of drive time. Our valley is very spread out.
  10. paul

    paul Lawnsite Addict
    Messages: 1,625

    Tony, I may be slow here on this......but where is your companies cut? I saw you take out for your self and your expenses but I don't see where your company is making it's $$$

    Maybe I'm old school but the company needs $$ to expand.

    gross- direct expenses= gross profit
    gross profit - overhead and indirect expenses= profit

    What I look for after all taxes are paid (corperation here) is the % left for the company to expand with.

    Then again maybe I'm just not seeing it.

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