Many HVAC contractors believe that they should price their maintenance plans with the first system at the “regular price” and the second, third, etc. system at half the price of the first system.
My question: Are you going to do half the work on the additional system(s)?
The only expense you don’t have for the additional systems is travel time.
So, what is the travel time expense?
It might be five or ten minutes if you plan your maintenances in the same neighborhood for an entire day.
However, let’s assume that you can’t do that. Let’s assume 30 minutes (0.5/hr) travel time.
Here’s the formula which is your profit and loss statement backwards:
(Net profit per hour + overhead cost per hour + technician wage) X hours
Assume:
- 30 minutes travel time
- Overhead cost per hour of $40/hr
- Technician wage is $25/hr
- Desired net profit per hour is $5/hr
The formula:
(5 + 40 + 25) X .5 = 35
So, the discount on the second system should be $35 given these assumptions.
Remember if you lose money on maintenance plans you have to divide by your net profit percentage to determine the revenues you must generate to cover that loss.
For example, if your company has 1,000 maintenance plans and loses $10 on each, that is a loss of $10,000. If the company’s net operating profit is 8%, the company has to generate $125,000 to make up the loss.
Over the next few weeks I will highlight some of the dumb mistakes business owners make. By revealing this mistake to you, I know you WON’T make it.
This pricing mistake is one of the 101 Dumb Financial Mistakes Business Owners Make and How to Avoid Them. I wrote this book to help you NOT make the 101 dumb mistakes I wrote about. By avoiding them, you’ll be more profitable and build more wealth.
Click HERE to order the book on ruthkinghvac.com.
Want a financial statement review?
Every business, large and small, can benefit from taking a closer look at its numbers. We’re happy to do a quick review – showing you what appears to be good and some areas you might want to pay attention to. (This is where Financially Fit Business can help too). Click here for more information.
And, pass along this offer to your business friends and colleagues who could benefit from this review too!
Ruth King is well known as “The Profitability Master.” She is passionate about helping small business owners become profitable and stay profitable. For over 40 years she has coached, trained, and helped contractors and others achieve the business growth and goals they wanted to achieve.
Contact Ruth by emailing ruthking@hvacchannel.tv.
