How Much Is Too Much to Charge Your Customers?

I was visiting recently with a friend of mine, a respected plumbing professional. His company has been in business for 34 years, passed on from grand-dad to dad to him. He learned the trade at his father’s knee. But, his dad didn’t know a lot about making money. In fact, until a few years ago, they were still using grand-dad’s selling prices. And going broke.

So, my friend invested in his own business education. He went to seminars, joined progressive contractor groups and started crunching numbers. He raised his prices and gave his team of plumbers a hefty raise. He’s spent a lot of time and energy learning about marketing. He learned how to communicate to customers why you are more expensive than other plumbers. He learned new ways to add enough value to the service call to make it a great deal for the customer. He has become a savvy businessman and marketer. And he is the only contractor in his market area to provide full insurance benefits and a company-funded retirement package.

My friend told me he had been called to justify his “exorbitant” prices to his District Attorney. One of his customers, let’s call her Mrs. Fernwicky, filed a complaint with the DA’s office. Interestingly, this is a customer who didn’t complain when she approved the work before the technician began turning wrenches. This customer was delighted with how fast my friend’s company arrived to handle the plumbing crisis, as the disaster happened Sunday afternoon. She had called two other “24 hour – 7 days a week” contractors but didn’t get an answer. So, this customer was just tickled pink with my friend’s company. Until the following Monday morning.

That was when one of the other “24-7” contractors finally returned her call. She explained to him that she had used my friend’s company, and didn’t need any help. That was when this contractor replied, “What? You used them? They are the biggest rip-off contractors in the area. They love working on Sunday because that’s when they can really take advantage of customers! They charge three times what we charge. You’ve been ripped-off, lady.” Or something to that effect. Because that’s what this woman told the District Attorney.

Do your competitors sabotage you when you try to raise the bar? I just don’t get it. I wonder how many attorneys have been called by the Attorney General to justify their exorbitant prices.

How much is too much?

Did you notice this article recently passed around on twitter and Facebook? Blog Editor, Paul L. Caron shares:

“Star lawyers still can fetch a premium, and some of them won't budge on price. The number of partners billing $1,150-plus an hour has more than doubled since this time last year, according to Valeo Partners, a consulting firm that maintains a database of legal rates pulled from court filings and other publicly disclosed information. More than 320 lawyers in the firm's database billed at that level in the first quarter of 2013, up from 158 a year earlier.”

The problem isn’t with the attorneys. It’s with my friend’s competitors. As a rule, attorneys who charge more are envied and respected by other lawyers. How about your industry. Do your competitors value your industry as a whole, and support a reasonable price for services and products? Or does your industry struggle with crippling in-fighting and low esteem. It seems that the blue-er the collar, the higher the “poverty” consciousness.

You choose ... the going rate? Or much higher?

You may choose to raise your rates so that you can provide a better living for yourself and your employees. If you do, I applaud you. And, if you do ...

• Don’t expect support from your competition. Sure, it would be nice if everyone crunched the numbers and created a selling price that would support a professional’s salary. But, the majority of the folks in your industry won’t see it that way. Expect to walk a lonely road.

• Learn all you can about marketing and customer service. If you are going to charge more, you are going to have to BE more. More knowledgeable, more available, more communicative, more of everything. Nobody knows more about high prices and great value than the folks at Disney. A former CEO shares his philosophy in The Customer Rules: The 39 Essential Rules for Delivering Sensational Service.

• Handle all customer complaints swiftly, and to the customer’s complete satisfaction. I know that you aren’t doing anything wrong by charging more than others in your market. But, insecure competitors may have polluted the waters. It’s not fair but it’s the way it is. So, deal with every price complaint. Here’s a possible response…

 “Mrs. Fernwicky, I understand you want to get the most from your money. And you don’t want to spend more than necessary for a repair. Our prices are based on our costs of doing business, which, given the nature of what we do, are high. While are prices are fair, in this instance, we have failed to communicate the full value of our services. For that, I apologize. What can we do to resolve this problem and keep you as our customer?”

 Then, do what she asks of you.

 After that, meet with your team. Take responsibility. What can you do better? Use the challenges to your pricing to improve your offerings and communication skills.

• Prepare to become a celebrity. Raising your rates will set you apart from the crowd. You are going to get noticed. That’s good news ... and bad news. Learn about how publicity works. Note that online communication puts all of this on warp speed. Check out Rethinking Reputation: How PR Trumps Marketing and Advertising in the New Media World.

• Be of stout heart. It takes a brave person to offer higher prices. It may be a rough road, but it will be worth it. Keep your standards, and your prices, high.

Raise the bar ... or keep it to yourself.

Whatever you choose to offer in terms of service and pricing, please, on Monday morning, don’t weigh in on your competitor’s choices.