Averaging Parts Pricing

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    By Jim Knapp

    Jim K

    Flat rate pricing has a lot of things going for it.  It has become the standard in most service industries from cars to dentists to our own service trades.  There are a number of reasons why:

    • It makes a service business more profitable by standardizing and averaging pricing
    • It allows the customer to see and approve pricing before the repair is completed
    • It increases billable hours and makes watching the clock less important. 

    Most of us have gotten used to the idea that the labor time built into a flat rate repair is a reflection of the “average” amount of time it takes to complete a task, not of the actual time needed.  If the technician is less experienced and takes longer, no harm done. And if the technician is an “old hand” and finishes early, that’s a benefit for the bottom line. Either way the customer gets an appropriate value for the price that was quoted. 

    Giving the customer an appropriate value by averaging also applies to part costing.   That is, if the part cost included in a repair is a little higher or a little lower than the actual part cost, it isn’t a concern.  There are a few good reasons for thinking of it this way:

    1. Time is saved by not having to find a cost and build a price.  That time not spent calling the office or a supply house for pricing means less confusion, less wasted time and more focus on what is important - giving the customer the service they need.
    2. Coolfront’s prices are based on single “one-off” purchases of parts.  If you buy more cheaply than the averaged pricing because you buy in quantity, are a smart buyer, or because of the years you’ve spent developing strong relations with your suppliers, then those savings should benefit your bottom line.
    3. If you are paying a higher price than the average it often doesn’t make much of a difference in the final flat rate price.  For example: 

    It wouldn’t be unusual for there to be a $20 difference in the price of a blower motor depending on where you bought it.  In this example, it only makes a 6% difference in the customer’s final price.

    jknapp1

    When the part cost is low, even a 100% difference in the cost makes very little difference.  In this example a 100% difference in the part cost of a contactor only makes a 10% difference in what the customer pays.

    jknapp2

     Whether it’s labor time or part cost, small fluctuations don’t matter as much as giving your customer a flat fee before the work is done so they can understand what’s involved and how much it will be.

     

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