How Low Will They Go?

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PMPs deal with cost-cutting competitors by adopting smart pricing strategies and a strong value proposition.

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March 4, 2021



Almost like Carmax, the “no-haggle pricing” that’s clearly defined on the rate cards Greg Schmidt provides potential customers leaves no question about what services will cost — and no wiggle room for technicians to bump it down to win a job.

“We don’t play the pricing game,” says Schmidt, president, Pest Solutions, Richmond, Va. “It doesn’t matter the size of the house or the car you drive.”

Aside from military, senior citizen and first-responder discounts, the price is the price. For the most part, existing clients get it and Pest Solutions is charged with explaining the value of their service to prospects so they understand the real cost associated with receiving quality pest management. So when a low-baller tosses out an estimate that feels like one of the old K-Mart Blue-Light Specials, Schmidt doesn’t counter-offer and customers who bite often return after getting burned. 

“I do recall an elderly widow that had our service for a number of years and a door-knocking company came to her neighborhood and promised her a lot for a lower price,” he says. “It turned out they delivered a lot — a lot less. She ended up coming back to our service within six months. That made us very happy, and her as well.”

Sure, it’s personal when a client lets you loose because a cheaper deal landed on their doorstep, Schmidt admits. “We are a family-owned company, we have a good team, and we consider our clients a big part of that, so we do take it personally,” he says. “But we are all consumers, especially in this environment of cutting expenses, so I understand it — I don’t hold anything against them. Instead, we endeavor to personally talk to them and show them the difference every time someone calls to cancel for any reason.”

For Travis Aggson, securing business in the competitive Manhattan, Kan., market involves understanding how low they can go while still making a profit and delivering value. American Pest Control provides this bold offer, written out on the back of fliers: If you can match our credentials and service, we’ll match a competitor’s price for a typical service call.

The thing is, many lowballers do not have the same credentials, and the service they’re delivering is not the same. So, this opens up an opportunity for American Pest Control to explain their price and, essentially, justify a higher cost to a skeptical prospect who’s been romanced by a low-ball estimate.

“We try to be competitive, but we need to survive and pay our bills,” Aggson says. “We want to compare apples-to-apples, so we’ll look at our service offer and say, ‘We can match that price, but we’ll take off this line item,’ whether it’s quality control or providing an added inspection. But we’ll never get to a point where it’s detrimental to a property.”

This requires setting an expectation that you get what you pay for.

And ultimately, that’s the hard-knocks lesson clients learn when they’re lured into a contract that is way below market price.

Lowballing is an industry constant, pandemic or not.

“It’s always a topic of discussion at industry roundtables,” says Martin Overline, president, Aardvark Pest Management, Philadelphia, Pa.

It’s a rather heated topic, actually. “Lowballing is a race to the bottom and not one we care to win,” says Carl Braun, president, Quality Pest Control, Omaha, Neb. “In the lowball game, eventually corners are cut, and who pays the price? The client.”

But the temptation is real when a business is struggling, a market is saturated with competitors, or the economic landscape of a region is such that clients are tightening purse strings. The key to holding a solid ground on pricing and sustaining a healthy profit is to know your numbers, show your value and stick to your guns.

 

 

PRICING TO LOSE? “Beware of bargains in fire extinguishers, brain surgery and pest management,” quips Braun. (It’s one of his favorite lines.)

Common lowball clients include multi-family complexes, especially those with many locations that want a volume discount, Braun notices. The same goes for some government/municipal accounts. Real estate termite inspections are another piece of business that tends to operate based on how low you can go. “We’d do some of those inspections, but we never got the job when we bid it,” he says.

Seasonal salespeople who might not understand the service are also lowball instigators. “They might not have full knowledge of the business, or they are given the freedom to roll with whatever to get the contract,” Schmidt says.

There are lowballers and value-players if you ask Braun. “There is a guy in town who advertises, whatever the competitor’s price is, we’ll beat it by $50 — so that’s lowballing, and we never get those jobs,” he says.

On the other hand, there is competitive bidding. And that demands owners understand their expenses and time. As Aggson says, “Time is something you will never get back, so make sure you are pricing to control pests and not just to get a job.” That’s why American Pest Management leverages its software program to produce productivity reports. Technicians are equipped with handheld devices that generate virtual service tickets for every account. While on site, technicians clock in and out of jobs.

In the system, the drive time and materials are assigned for every job. So, Aggson can quickly review a dashboard and determine, based on time, whether the job is profitable. This helps with bidding new work and establishing pricing. “Rather than asking a tech who is bidding a job, ‘How much material are you going to use? How long does it take to drive there?’ All I have to ask is, ‘How long will it take to do the initial service and how long for the follow-ups, including drive time?’ Then, I can give them a low-level number to offer the service.”

This is competitive pricing, not lowballing. “We do not offer free inspections, and that helps us cut out people who are just looking for the cheapest options,” Braun says.

FREE INSPECTIONS? What about free inspections? Even with the right pricing, will you ram revenues into the ground if you’re spending time on properties without billing?

Braun says that his firm’s fast response to calls is part of the reason. “We say, ‘I can have someone out to look at your property tomorrow,’ and I let them know the fee,” he says. “If they say, ‘Hold up, I want you to take a look and give me the options,’ I say, ‘Perfect. That will cost $89, and we will apply that to your service.’ If they balk at that, it’s a disqualifier. We are either selling the job on the phone for a one-time service, or we are telling them we will charge them for an inspection. Most of the time, our clients are fine with that.”

Yant points out, “Plumbers and electricians do not come on site without charging a fee to make an assessment.”

Julie Yant says she and husband, Andy, tried to charge a nominal $25 fee for inspections, but that lasted for less than a year. “It was not well received,” says the co-owner of Pest Inc., Goodlettsville, Tenn. “We wanted to at least cover the labor and gas for the drive time, and I wish we could go back to charging, but in our market everyone offers free inspections.”

However, Pest Inc., does charge for bed bug inspections, and this service is not included in their Happy Home Pest Protection Plan, a bundle that allows the company to give customers a “deal” while maintaining profitability. “We have tiers and add-ons with the program,” she says, noting how the “buildability” of their offer gives clients flexibility to spend more or less on pest control. Services are slightly discounted if purchased with the program. “We let them know if they want that pricing, there is the program — and otherwise, we have one-time pricing,” Yant says.

SHOW THEM THE VALUE. Before door-knocking season in the spring, when salespeople tend to hit the streets to earn new business, Schmidt sends out a friendly letter to his client base. “It’s a forewarning of the solicitations that will occur to give them a heads-up,” he says, noting that the letter is ultimately a value statement. “We want them to know we are serving them.”

Selling value vs. price is how to avoid playing the pricing game.

“If you’re doing your job and you have investigated where your pricing stands in the market per hour, you should be able to uphold that price,” Overline says.

Yant reflects back on when Andy started their business 20 years ago and set pricing for services. They went in 20 percent higher than competitors. “My husband had worked in the industry for a period of time and he knew what other companies were offering and not offering,” she says. “He wanted to differentiate us from that and offer the caliber of service we wanted to provide.”

He knew he had to cover costs, too. “Our focus has always been to be the professionals and experts in the field,” Yant says.

But how do you show that to prospects and clients who don’t necessarily understand the training, quality control and knowledge required to deliver effective pest management?

Sometimes, they learn the hard way after they leave for a lower-priced provider and then return for superior service. “If clients are not happy and think they are not getting value, we ask them to let us know and give us a chance to fix it,” Braun says. “And, we let them know they are not held to a contract, and that seems to ease their minds.”

BUILDING VALUE. Braun reminds PMPs that there’s big value in the little things, such as bringing in trash cans from the curb, walking a newspaper that was flung into the lawn up to the front porch, or making a personal phone call to ask, “How is our service?”

Ultimately, “You are not going to stay in business if you are a lowballer,” says Dan Gordon, owner, PCO Bookkeepers and M&A Specialists, who also broadcasts the PMP Industry Insiders podcast with Donnie Shelton of Coalmarch and Triangle Pest Control.

He recommends reviewing the cost study at PCOBookkeepers.com to understand how much you must spend to run your business so you can price for profitability. “Your price-per-hour should be at least $100 and your route efficiency needs to be a minimum of 65 percent,” Gordon says, adding that this is a general baseline and companies must carefully review overhead, labor, material and other expenses like insurance.

A danger of newer business is entering a market with a price that’s too low, even if your expenses are a startup level, Aggson says. “You might not have a brick-and-mortar office or employees, but if you are charging 50 to 20 percent less than the competition, you’re leaving money on the table,” he says.

Plus, eventually raising prices as your business and its overhead expenses grow could result in more client attrition than you expected. And Gordon notes that in today’s hot M&A market, potential buyers are not turned on by companies for sale that are price-cutters — an important succession-planning factor to consider. In the service industry, buyers are essentially purchasing your customers, and they don’t want them to cancel the service if pricing must be corrected. “If you are a lowballer, your company has very little value on the M&A market,” he says simply.

Successful business owners have a “win some, lose some” mindset if a customer shops only on price. And many industry consultants recommend raising prices annually, as the cost of materials, labor, insurance, rent and even the K-cups for the office will naturally rise every year.

Attrition isn’t necessarily a bad thing if you’re losing the folks who only want a deal.

The author is a frequent contributor to PCT.