Professional Christmas light installers: are you presenting your prices in a simple, clear, and effective manner?
Boost sales and make customers happy with our guide to pricing strategies!
How should I present my pricing to potential clients?
In our last blog, we talked about ways to determine the pricing you should charge and base it on both the margins you wish to achieve as well as what the market is willing to pay. An important step is to present your pricing in a manner that is clear, concise, and facilitates confident, quick, and emotional decision making -- hopefully in your favour! Communicating your pricing in a way that Increases the perceived value of your offering will also give you the most room for margin.
Let’s assume you’ve done your research and determined the appropriate perceived value of labour is $75/man-hour and a string of lights is $30 each. These represent margins of 67% and 33%, respectively, using the costs described in Part 1 ($25/hr and $20/string). Since new installations typically average about a 50/50 split in revenue between product and labour, the total margin for the job will be 50%, which matches our required target determined in Part 1. For repeat customers, your revenue will be less, but your margins will be higher because they will require labour only, which allows for a higher margin.
When quoting your jobs, you don’t want to share your costs and markups because this will cause customers to reconsider their perceived value. Instead, keep the pricing structure as simple as possible. The simpler it is, the less you’ll be questioned on your pricing. You want to make the highly emotional decision-making process for your customers as straightforward as possible. The longer customers think on a purchase, the more likely they will talk themselves out.
In the Christmas lighting industry, there are two commonly used ways to present your pricing:
- Price per foot price
- Flat fee
Each of these methods can either include labour and product together in the pricing, or they can be separated on different lines. We’ll discuss advantages and disadvantages in each of these cases.
Price Per Foot
Price per foot is presented in a piece-work fashion. Some companies even use this method for compensating their installers. For example, lights to be hung on a roofline could be priced at $3.50/foot for the product, an additional $3.00/foot for installation, and another $1.00/foot for removal. Add $0.50 for accessories like clips and extension cord and you’ve set your total price for a new roofline installation with lights and labour at $7.00/foot.
The advantage to this form of pricing is that it’s simple for the customer to understand. It also reduces risk if you mis-measured, or you didn’t measure at all. You just charge to the exact number of feet decorated and communicate to the customer that it could vary depending on how well you measured.
In the heat of the season when there’s limited time for consultations, quoting a job from emailed photos or looking from Google Street View could be the quickest way to get a figure to your prospective customer. Quick turn-around times for delivering quotes has a significant impact on winning jobs, especially in the rush leading up to Christmas.
The disadvantage is that if you underestimate the complexity of the work and it takes longer to install than you expected, you’ll be on the hook because labour is based on the number of feet -- not the amount of time. If you underestimated the number of feet required, you could get a disgruntled customer if you try to charge them more. Conversely, you will be foregoing revenue if you overestimated. Furthermore, the price you determined per foot could exceed the perceived value of the customer and they will sometimes question how you arrived at number $7.00/foot. Always be prepared to answer this question clearly, concisely, and reasonably. Also consider adjusting the labour slightly (ie. +/-30%) depending on the complexities of the roofline or tree. Knowing how much to adjust comes from experience, which you’ll gain very quickly.
Flat fee pricing is another simple way to present costs to the customer. For example, lights could be priced at $3.50/foot plus $0.50 for accessories. This time, you’ll estimate a certain quantity, 100 feet, and calculate a set fee for all material:
$3.50ft + $0.50ft x 100 feet = $400
Labour would be calculated in a similar manner using the earlier example:
$3/ft x 100 feet = $300 for install plus $1/ft x 100 feet for removal = $400 total
The entire project would be presented with a single fee of $800.
The advantage of using a flat fee is that the customer can be rest assured the price they agree to will be the price they pay. Commercial properties whose budgets are often not flexible will appreciate this method. This form of quoting is also very simple and can appeal to more perceived values.
The disadvantage is that if you’ve underestimated the job, it's very difficult to adjust the pricing and most customers will protest if you attempt it because you haven’t outlined in the original quote a breakdown. Trust will be eroded.
If you decide to use flat fee pricing, keep good internal notes of how you arrived at your calculations in case they become a repeat customer and you need to make adjustments in subsequent years.
Separating Product and Labour Costs
In both price per foot and flat fee quoting methods, you may find it advantageous to separate lights and accessories from installation and removal. The first year of an installation for a customer is usually the most expensive because they are buying commercial-grade lights for the first time. To reduce any potential sticker-shock, separate them and clearly indicate that product is a first-year expense only and labour will be the sole cost in subsequent years. Customers can more easily justify the cost this way.
Separating installation and removal from each other, however, is not recommended and you may find yourself creating more paperwork. If the project is seasonal with lights going up and coming down each year, charging for everything once and upon completion of the installation reduces the amount of invoicing by half as well as the amount of chasing for payments. Furthermore, it significantly helps your cash flow because you are collecting payment for all the labour before Christmas instead of a portion after.
When installation and removal are separated, it challenges perceived values because most people don’t understand how quickly the lights come down. They could also consider the installation portion too expensive and try to negotiate. Instead, amortizing a single labour fee across two separate visits to a customer’s home while simplifying the payment process adds to the perceived value. And getting them to book for next season while removing the lights is a lot easier when you are not asking for money again.
There are no right or wrong ways to charge a customer. As long as you are earning margins that you feel are appropriate and afford you your desired lifestyle while at the same time meeting or exceeding your customer’s perceived value of the service, you are winning the game! Take the time to learn exactly what your customers want and try both price per foot and flat rate methods for a season, especially if you are just starting out and running small and nimble. Constantly tweaking and adjusting to what is working well for both you and your customers is imperative. Evaluate and re-evaluate your market every year and you’ll find yourself with a winning strategy in an extremely successful business in no time.
As always, if you have any questions on this topic or others, please reach out to our talented, informative team and we’ll guide you to ensure the most possible success.