- December 29, 2018
- Posted by: admin
- Category: Accounting Advice
What is the real cost of doing business? How much profit are you making? You need to understand this in order to price your services appropriately and not sell yourself cheap. You are providing a needed service and if communicated properly to your customer that way you will be able to command your price.
Understanding Your Profit and Pricing
Pricing in pest control is based on two variables: Time and Money (hourly rate)
- Time: The service time it takes to fulfill the obligation of eliminating the customer’s pest problem under the service program. This includes treatment time and call back time. The PMP’s that make the most money realize that while they provide pest management services, what they are really selling is time. Every action performed that makes more efficient use of time will provide larger profits. This is by no means to say we are to trade quality workmanship for time. It is to say that we must make reasonable estimates of the time that it takes to provide quality service.
- Money: This is an hourly charge for our pest control service that covers our costs and allows us to make a reasonable profit. In order to know what this rate should be, accountants use a technique called Breakeven Analysis.
Breakeven Analysis is comprised of three elements:
- Fixed Costs: Any cost that remains constant at any volume of business (i.e. rent, advertising, utilities, etc).
- Variable Costs: Costs associated with developing one unit of a good or in our case one unit of service. For our case, one unit of a service will be one hour of service. Therefore, variable costs are those costs that rise and fall based upon number of hours that we provide service. Examples of variable costs include: Hourly Pay for your technicians, Worker Compensation Insurance, Material costs, etc.
- Gross Profit: The difference between the price charged per unit (Hour of Service) and the variable cost per hour. For example, if we bill our service at $100 per hour and a technician gets paid $20 per hour and all other variable costs associated with providing that hour of service are $35, our gross profit would be $45 (figure $100 billed less ($20+$35) variable costs).
Therefore, Breakeven looks like this:
Breakeven point in units (service hours) = fixed costs divided by gross profit per hour
The above discussion is accurate in terms of pricing methodology. Some would argue that a small operator can operate at lower prices because he/she does not have the overhead of the larger companies. There is nothing further from the truth. You see the above costs may vary slightly from company to company, but over the long run the cost structure is the same for the small operator and large operator alike.
So, how do you compete? Beat them on quality workmanship!!! Never on Price! For more information on obtaining new customers and keeping them Click here