Everyone wants a deal. But as a highly respected gentleman once told me, if we all bought services and products based on the lowest price, there would be no Starbucks. We’d all buy coffee at McDonalds. There would be no Cadillacs, we’d all be driving the equivalent of a Black Model T. Think of the most expensive steakhouse. Is there a difference between this and low cost family steak restaurant? You decide.
I’m not saying the low cost alternative is not a good option; it’s just not the only option. Many of us pay extra for higher quality, better service, or name brand products based on experience. It’s not always about the lowest price.
How many times have you received a price from a service provider and thought that it seemed high? But have you ever thought about what goes into pricing. When I started my business I had no idea how to price our services. So like any engineer that has been referred to as a “closet accountant,” I did a calculation that took into consideration what the price had to cover. Let’s see, there is direct labor, overhead, and profit. Simple, or so I thought.
Direct labor includes the salary or hourly rate, payroll taxes, health care, and any other benefits given to the employee. Overhead includes portions of our office rent, office fixtures, desk phones, cell phones, computers, internet, software, security system, office supplies, etc. Insurance costs include liability coverage, workman’s compensation, fire/theft coverage, etc. We supply vehicles for staff to get to our clients including the gas, insurance, and maintenance expenses. There are our professional expenses for CPA and legal support. Don’t forget travel and entertainment expenses. And the training, marketing and sales expenses to continue to grow our employees and our business. Of course there are federal, state, and property taxes that seem to grow exponentially as the business grows. Finally there is hopefully a profit that keeps us from throwing in the towel. How much profit is always the question? I believe we should follow the market for our particular industry service. Not always the cheapest but not the most expensive either.
So in summary, remember that you can always find deals. Just make sure you are getting everything you are paying for and understand that you will not get what you don’t pay for.