Service Sans Material & Negotiating for Supplies
Need some help improving your electrical service business? Just ask Mister Sparky (AKA Patrick Kennedy). As the owner of Mister Sparky, Inc. in Atlanta and the president of Electricians' Success International in St. Louis, he knows a thing or two about the industry.
Over the last few years, we've seen a rise in the number of customers that want to supply their own materials. This takes away from our ability to cover overhead and profit. What is a good way to be equitable in billing when a customer only wants our troubleshooting skills or labor to install their materials?
With the rise of the big-box retailers and the recent craze of do-it-yourself home repair and remodeling, it's more popular than ever for homeowners to have their own materials when you show up for a job.
In the past, electricians could depend on making money on the markup of products and materials, which was necessary in the world of time and material pricing. But in today's world, the progressive electrician is offering customers flat rate/up-front pricing on all service work. This pricing method will solve your problem. If you stop and think about it, this is really what the customer wants. They want to know what the job will cost in advance — just like you would. If you look around, you'll notice that most companies in the plumbing, HVAC, and auto service trades already use this approach.
Just remember, when implementing this pricing method it's critical for you to price the job right. Ensure that the flat rate pricing you offer clients is sufficient to cover all overhead and profits based on labor only. If you're able to make additional revenue on a call based on materials, this will provide you with a little additional revenue. But, don't rely on this extra work.
The real factor here is to understand what your labor and expertise is worth. Base your pricing for work off your labor costs, and you won't have to worry as much about the instances when a customer supplies the materials. Be careful not to overestimate your efficiency percentage. Most service companies are only 50% to 55% efficient. Even in the best companies there are a lot of lost hours for tasks such as driving time, training, and restocking material.
It seems like I'm paying more for materials than some of my competitors from the same wholesaler. What can I do to make sure I'm getting a fair price?
When it comes to getting the “best” price on materials, I suggest you follow the old adage, “Better shop around.” There really is no good way to know how your price compares to your competitor's unless you shop around.
If you've been doing business with a wholesaler, let them know you value using them, but tell them that you're going to shop around for a lower price. They may suddenly offer you a discount on materials. It never hurts to ask, right? Also, decide which panelboard/breaker manufacturer you want to purchase the bulk of your inventory from in advance, and ask your main supplier to secure a “blanket” pricing agreement from them on your behalf. This gets the manufacturer involved in the game and will help lower your prices.
You can also join an organization or buying group to help get the lowest prices available. The power of a buying group can level the playing field for even the smallest companies.
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