Break Even is the Most Important Number In Your Business. Why?
Determining the selling price for your service repair business involves careful consideration of various factors to ensure that you cover your costs and make a profit. Here's a step-by-step guide to help you figure out your selling price:
1. Calculate Your Costs: Start by identifying all the costs associated with providing your service repair business. These costs can be categorized into two main groups:
a. Direct Costs: These are costs directly tied to each repair job, such as:
? Labor: Calculate the cost of labor for the technicians who perform the repairs. Include wages, benefits, and any related expenses.
b. Indirect Costs: These are overhead expenses that aren't tied directly to a single repair but are necessary for your business to operate, including:
*Rent or Lease Payments
*Utilities
*Insurance
*Equipment Maintenance
*Marketing and Advertising
*Office Supplies
*Administrative Salaries
2. Calculate Your Desired Profit Margin: Decide on the profit margin you want to achieve. This margin should be competitive in your industry and allow for business growth and sustainability. For example, if you want a 25% profit margin on each job, this means you should aim to cover all your costs and make a 25% profit on top of that.
3. DO NOT DO THIS!! “Consider Market Pricing: Research your competitors and the market to determine what price range customers are willing to pay for similar services. Make sure your pricing is competitive while also covering your costs and desired profit margin.” Huge mistake contractors typically make!!!
Again, DO NOT DO THIS!! I can't say it enough...
THE PRICE IS THE PRICE!!! 4. Account for Contingencies: It's essential to factor in unforeseen expenses or unexpected delays that may occur during repair jobs. This ensures that you won't be operating at a loss when unexpected issues arise. No company is 100% efficient. Below are efficiencies you should be able to meet.
a. Plumbing & Electrical Service efficiency runs about 40%. Why? Give me a call or Text me. 913-231-7717
b. HVAC Service efficiency runs about 37.5% Why? Give me a call.
c. Installation (not service) runs about 60%-65% Why? Give me a call.
5. Set Your Selling Price: Use the following formula to set your selling price:
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Selling Price = (Total Costs / (1-Desired Net Profit))
Ensure that your selling price is competitive but still allows you to cover all your costs and achieve your desired profit margin. Said differently. If your efficiency sucks, stop sucking…
6. Review and Adjust: Regularly review your pricing, by verifying your efficiency Daily, Weekly, and Monthly. If you find that you're not meeting your profit goals, be prepared to adjust your prices accordingly.
7. Communicate Your Pricing Clearly: Ensure that your pricing structure is transparent and easy for customers to understand. Provide detailed estimates or quotes for each repair job to avoid misunderstandings.
8. Monitor and Track: Keep track of your costs, pricing, and profit margins for each job. Use accounting software or spreadsheets to maintain accurate records. This data will help you make informed decisions about pricing adjustments. Caution on Software. Make sure your software is giving you the right information. Many times, I’ve seen different results from software companies. Trust, but verify.
Remember that pricing can vary based on factors such as location, target market, and the specific services you offer. Regularly reassess and adjust your pricing strategy to maintain your profit margins in your service repair and replacement business.
If you’ve read this far. Please Reply with the right answer to my questions below. I do this to verify my training is understood.
What is the proper selling price for the following scenario? (Warning, 98% of the business owners fail this test.)
What is the selling price for the following scenario?
Material and Equipment Cost $400
Direct Labor Cost $250
Overhead Cost $350
Total or Breakeven equals $1,000
You are looking for a 25% Net Profit.
This is a Test! "What would be your selling price, for the question above?"
Please reply with your answer. Thank you in advance.
All questions will be answered. Call or Text me. 913-231-7717
#FrankJBlau #NexstarNetwork #DoYouKnowYourBreakeven #Service #Repairs #Installations #JimHamilton #Plumbing #Heating #Cooling #Electrical
Business Owner at sams heating,A/C & Refrig. service Inc.
1 年Was lucky enough years ago to learn this from an article in one of the trade magazines that explained everything in detail. It's always amazing at the guys out there that are lucky enough to afford health insurance must less a retirement plan or other major Investments. Work smart and don't let other people steal your life away.