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Pricing Service in a Small Service Company

From the latest USA newsletter: Pricing Service in a Small Service Company By David Oliva

While doing research for this series of articles the topic that came up most frequently was pricing.  How do I know what to charge, what pricing structure should I use, what’s “fair”, what’s the value of our service, should I be cheaper than my competitor, etc?  Appropriate and profitable pricing is one of the most important parts of running a successful small service company (SSC).  It’s also one of the most difficult. Most SSC owners, me included, have no formal business training and so we struggle with issues like this.  Many SSC owners undervalue their skills by quite a bit because of this lack of training and so are sometimes extremely underpriced.  This creates a variety of problems such as not having enough extra income to cover the cost of necessary training and an inability to expand or improve the company due to lack of funds.  It also creates a problem for the industry as a whole because it undermines professionalism and creates an atmosphere where customers are taught not to value our profession as they do other professions.

Let’s start at the beginning. The foundation for all pricing starts with your cost of doing business (CODB).  Without knowing your CODB setting prices is a guessing game. United Servicers Association has a great, free, CODB calculator on their website.  What it will allow you to do is input all of your expenses and calculate your CODB on an hourly basis.  Knowing how much it actually costs you simply to be open for business each hour of the day is invaluable and, at least the first time you do it, eye opening. It was a big shock to me when I ran those numbers about 5 years ago.  I had no idea we had to spend so much money just to be open.  Once you have that number you can begin planning a pricing structure.   

Link to USA free CODB: https://www.unitedservicers.com/codb-calculator

There are two basic structures for pricing, hourly or flat/job rate.  An hourly rate is self explanatory but a job rate structure may be unfamiliar to some.  A job rate structure will typically have between three and ten rates, which will vary from the simplest jobs to the most involved and complex. With a job rate system the time it takes to complete a repair is only one factor out of many used to determine the price. Job rates systems are generally the most profitable way to price repairs in our industry.  The benefit to the independent SSC of a job rate system is the ability to capitalize on experience and skill. With an hourly rate the better and faster one gets the less money they will collect on each job, making it necessary to complete more jobs to make the same amount of money. With a job rate system the faster you are the more you make because the price of the repair is not tied to time. Job rate systems reward skill and efficiency.
 
What is fair? This is a contentious point in our industry. Many SSC owners feel that we should not charge professional rates for the work we do or that job rates are “unfair” to the customer because they tend to increase the overall repair price.  I believe this stems from a lack of respect for the work we do, even from people within our industry.  This attitude, as stated above, undermines the industry as a whole.  There is no reason why we should not be well paid for the service we provide to our customers.  Fairness is subjective and so it is a meaningless concept in regards to pricing.  Pricing in an SSC, which typically does a low volume of repairs relative to larger companies which can take advantage of high volume, should be fundamentally based on two points.  The first, and most important, is CODB.  Without covering your CODB you will fail, this is simple math.  If your CODB dictates rates that you feel are “unfair” then you either need to reduce your CODB or let go of the idea that prices can be fair or unfair.  The second point is your market.  After you’ve calculated your CODB you can then feel out your market for profit maximization.  The old school method for feeling out maximum price still holds true, if you’re not getting at least a few complaints about your prices you can charge more.

Value is also subjective, and so ideal customers may be those that place a premium on quality service and are willing to pay for it.  If your market is a large metropolitan area then chances are high end brand appliances are plentiful in your service area.  Typically customers with these brands will value quality over price and be willing to pay higher rates for better service.  In such a case why try to compete by having the lowest price?  Why not offer the highest level of service available and charge appropriately for it? Competing on price is often a race to the bottom and in the current economic climate lowering your prices may not be a viable option. Compete on quality, not price.

The biggest obstacle to higher rates, and higher profits, is often psychological.  It’s very common to hear SSC owners say “I can’t charge that! No one will pay it. My competitor only charges $10.”  This is a myth based on nothing but fear.  I was once browsing the racks of luxury retailer Neiman-Marcus and came across a shirt from the designer brand Givenchy.  This was a simple sweatshirt with a screen printed Rottweiler on it. This shirt was priced at $900. You may not be interested in designer fashion, but LVMH Group, the parent company of Givenchy, made about $5.7 billion in profit in 2017. The point being that customers are willing to pay almost anything for what they perceive to be valuable.  And this is where value comes from, a product or service is valued at whatever people are willing to pay for it.  If you can set up your company to be perceived as more valuable than your competition then you can command higher rates. 

This industry is full of people who love what they do, and are very good at it.  They treat their customers with respect; they provide quality service and honor their warranty.  The go out of their way to help people who need help.  And so why shouldn’t they make enough money to drive a new service vehicle, have excellent health insurance and take a great earned vacation now and then?  Why shouldn’t they value their skills the way other trades and professions value theirs?  Why shouldn’t there be enough extra profit to provide for a great retirement, another topic of great interest to SSC owners?  The answer to all of those questions is they should, and there should be.  Pricing appropriately will ensure that and we need to focus more on this, and in greater depth, especially for the SSC owners, since we are the ones who need the most help with it. 

LI-NY Tech

LI-NY Tech

 

Running A Small Service Company

I wrote this for the USA Newsletter a while back.  Thought some people here might find it interesting.   Running A Small Service Company Small service company (SSC).  An SSC is a company made up of less than 5 employees.  The Small Business Administration statistics for 2013, the latest available, show that businesses of this size make up approximately 80% of appliance repair companies in the United States.  Businesses in this category often consist of just one person. Most of the people I know in this industry either run or work for an SSC,  I run an SSC.  Although this size business has a lot in common with larger companies operating a very small service company has unique challenges that larger companies may not share. Most SSC owners are also full time technicians.  As techs and business people we have a wide variety of responsibility that might be delegated in a larger company.  Not only do we have to run service calls all day, attend technical training every few months and re-stock our trucks on a daily basis, we also have to meet with the accountant, run payroll and review the performance of other techs in our company.  Not only do we have to research field service software, check up on payments collected by employees and wait on hold to talk to customer service for our ISP, we have to package and return parts, email the manufacturer service manager about that recurring warranty issue and so on, ad infinitum.  And also be home in time for dinner, because why do all of this otherwise? Balancing this technical, business and personal responsibility can be a challenge. As with any size business the ultimate responsibility lies with the owner.  But in an SSC day to day, almost every problem, no matter how small, almost every decision, no matter how trivial, is in the hands of the owner.  So what can we do to alleviate the stress that comes with that responsibility? I’m sitting here on a Sunday evening writing this.  We spent the day in New York City at a food truck festival with the kids, they loved riding the subway.  It was a fun day.  But it’s 9pm and I feel like I need to get back to work.  This is the way it is.  This business is my life and vice versa.  My wife and I are both a part of it, so is my father, my children come to work with me sometimes and hold the flashlight.  There is very little separation between business and personal life, and this is what we’ve chosen.  Business is discussed in the same conversation as family vacations.   I spent most of Friday evening thinking, and discussing with my wife, about an email I sent to the president of an ultra premium appliance brand as we try to work out an arrangement for my company to service their products.  Was it worded properly?  Are the rates I submitted calculated correctly?  And this was over a beer on parents night out.  But it wasn’t a burden, we enjoyed it, it’s simply another part of our lives. I don’t have a service manager, that’s me.  I don’t have a parts department or a technical support team for my technicians, that’s me.  I don’t have someone to manage inventory, that’s me.  And I like it that way.  And that’s the way many SSC owners feel.  With what seems like a constant push for growth from all sides many of us are happy with the way things are.  We are doing well.  We are agile and quick to make necessary changes because we can, because we are small.  Everyone structures their lives differently but all of us are totally invested in this on an excruciatingly personal level. With the overwhelming majority of US appliance repair companies being very small and not planning on growing I think we need to take some time to consider how we can improve and professionalize this segment of the industry.  Some of our companies are having trouble competing with larger service providers, what can we do that they can’t?  Some are having trouble keeping up with technological changes, what can we do to improve access to information, and education on how to find information?  Some are concerned with rising overhead costs and lower appliance sales prices, what can we deduce about the future of the SSC from those two trends?  These are questions that need to be answered if companies of this size want to continue to operate profitably into the future.  Let’s answer them.

LI-NY Tech

LI-NY Tech

 

The Anatomy of a Miele dishwasher Waterproof System

Miele produces the best dishwashers on the market today. They are high end machines...very quiet, they wash well and last many years beyond the life span of a lesser quality brand. However, like all machines they do break down. One of the most common failures to occur on a Miele dishwasher is the Water Proof System (WPS). That's that mysterious grey box under your sink. What is that thing? The WPS is a dual water inlet valve. The redundancy ensures that if one valve fails to close the other will, greatly reducing the chance of flooding your kitchen. That brass part on the left attaches to the house plumbing, the box contains the two solenoids and the gray tube contains the water intake hose, the wiring and outer sleeve. When the electronic calls for water the solenoids open and the water flows through the intake hose and into the dishwasher. The outer sleeve acts a protection against leaks. If the solenoids leak the water will flow along the outer sleeve and into the drip tray in the base of the dishwasher. When enough water accumulates the float switch will be activated and the water intake will stop. The drain pump will also be activated until the machine is unplugged or the water is no longer present in the drip tray. The inlet to the WPS contains a filter and a restrictor. The filter stops large debris from entering the system and the restrictor ensures correct water pressure. The filters often get clogged and can be easily cleaned. The Miele dishwasher service manual states: Thanks for reading. David RD Appliance Service, Corp. http://www.rdapplianceservice.com RD Appliance Blog

LI-NY Tech

LI-NY Tech

 

The Mysterious Mystery of the Miele Malady

Recently RD Appliance Service was briefly confounded by a Miele washer, a W1918, not exactly the latest model. The complaint was that the washer would not spin out the clothing at the end of the cycle, it would leave them sopping wet. Sometimes, if the customer re-ran the cycle the washer would spin. So, armed with all of the necessary technical documentation and diagnostic equipment I ventured out to the home. Upon arrival I opened up the service manual on my tablet, placed the machine into service mode and proceeded to run a spin test. The tub spun up to high speed without a hiccup. Hmmm, I thought. So I exited service mode and just ran a regular spin cycle, and again the washer spun. After questioning the customer about her use of the machine I concluded that the machine was sometimes being overloaded and that this was causing it to be unable to balance itself, thus preventing it from spinning. Not so. She called back the next day with the same problem, and again when I arrived the problem would not occur. So I needed to do some more in depth research on this issue as this is no “Just replace it” type of washer, they retail for $2000 or more. With some helpful tips from my fellow appliance technicians at appliantology.org I returned armed with more knowledge and we got it figured it. My father and I both went back on this, two heads and all. I called the customer about an hour before we were going to arrive and had her start a wash cycle. This worked out well because we arrived just at the end of the cycle and found the washer not spinning. Finally! No spin at the end of a regular cycle, no error codes flashing. Set it to a spin only cycle, no spin. Put it in test mode and ran a spin test, no spin. Alright, now we’re getting somewhere. So, we opened up the front of the machine (thank you Miele for making the whole front panel open on a hinge!) in order to find out if the motor was getting voltage, which would indicate a problem with the motor itself. However, this old Miele technical info does not include voltages for the motor, and the wires are all the same color and not labeled, same goes for the connectors. We knew it uses a single winding DC motor, but that’s about as in depth as Miele gets regarding the motor. So after exercising our finely honed diagnostic skills we determined which two wires were the motor voltage supply wires and we attached the voltmeter leads to them near the lower electronic (secondary control board). We once again put the machine into spin and the damn thing started spinning again. This, however, showed us the voltage used by the motor when it is working, and this is crucial information. In case you are interested it uses ~16-20 VDC on tumble, changing polarity as it switches directions, then the voltage ramps up to a whopping 195 VDC on max spin. Ok, so we know the motor works, but we still don’t know what’s wrong with the washer. We began doing basic diagnostic checks once again, check and clear drain pump trap, check pressure switch hose, etc. Nothing. So we ran another test cycle. This time allowing it to fill and tumble and then move to drain and spin. Aha! Now it won’t spin. It tumbles a little at 16-20 VDC, then stops and won’t spin, no voltage to the motor. Ok, good. I suggest checking the pressure switch again. So my father tapped the pressure switch and voila!, this motherfu%&er starts spinning, and reads all the way up to 195 VDC again. Yes! The pressure switch was sticking….sometimes. So, we’ve replaced the pressure switch and the air trap with the pressure switch hose and that old school, quality German washing machine is running like new once again. Thanks for reading. David RD Appliance Service, Corp. http://www.rdapplianceservice.com RD Appliance Blog

LI-NY Tech

LI-NY Tech

 

Centrifugal Pumps and Cavitation

I recently had a customer whose washing machine would not drain. I attributed this problem to the excess of suds in the tub. The customer seemed skeptical of this diagnosis and so this problem seemed like a good topic to delve further into. Oversudsing issues are very common in washing machines and dishwashers. Using the incorrect type, or an excess, of detergent can cause an oversuds situation. This often leads to drainage problems. The drain pump cannot pump out overly sudsy water. But why not? It's because of something called cavitation. Cavitation is the formation of vapor cavities in a liquid. Washing machines and dishwashers use centrifugal pumps. A centrifugal pump needs an uninterrupted supply of water to function properly. The spinning impeller causes the water inside the pump to spin as well, creating centrifugal force, which causes the water to flow away from the center, or inlet, of the pump and out of the discharge port. This displacement creates negative pressure which sucks more water into the pump. Introduction of suds, which are mostly air, into a spinning impeller will interrupt the flow of water and introduce air into the system, disrupting the vacuum being created, and ultimately preventing the pump from being able to discharge the water. This will not be resolved until the suds are eliminated. Fabric softener or vegetable oil can be added to the machine to help to eliminate the suds and allow the pump to finish draining the water. The video below is a brief introduction to the way in which centrifugal pumps function. Thanks for reading. David RD Appliance Service, Corp. http://www.rdapplianceservice.com RD Appliance Blog

LI-NY Tech

LI-NY Tech

 

IR Thermometers and Emissivity

"Emissivity is the measure of an object's ability to emit infrared energy. Emitted energy indicates the temperature of the object." That definition is from an article on Rayteks website titled Emissivity of Most Common Material. I only recently learned what emissivity meant, and because of that I've been using an infrared (IR) thermometer for over a decade and it seems that only now am I able to use it properly. IR thermometers measure surface temperature, not air temperature, and so it is important to know both the emissivity value (EV) of the material you are measuring and the emissivity setting (ES) on your IR thermometer. Some IR thermometers have a programmable ES, for instance the Fluke 62 Max, which is adjustable between 0.1 and 1.0. Others have preset ES, usually at 0.95. An EV of 1.0 means the material gives off no radiation, this is known as a "black body". The lower the number the more radiation the material emits, and the materials with EV of 0.99 and below are known as "gray bodies". Wood, for instance, has an EV, depending on species, of between .88 and .96. Polished aluminum, on the other hand, has an EV of 0.04 - 0.05. To better understand what this means in practical terms I performed a simple experiment. I set my oven to 350ºF. I used a Fluke 62 Max to take measurements at the back wall of the oven after it was preheated. I did this three times for each ES, in increments of 0.1, from 0.9 to 0.2, and averaged the three readings. Below is a graph of the results. The graph above shows that at the highest ES the readings were quite accurate, and this makes sense because the EV of steel is 0.8-0.9. But by 0.3 the temperature readings were off by almost 400ºF. And at a setting of 0.2 the thermometer was incapable of reading anything because it surpassed the maximum readable temperature of the 62 Max, which is 932ºF, almost 600º higher than the actual temperature. It's easy to see how using an incorrect setting could give a very inaccurate reading and how important it can be to align your thermometers ES with the actual EV of the material you are measuring. In many cases the default ES of 0.95 will be suitable as most materials appliance techs are working with, plastic and steel, have an EV of between 0.85 and 0.95 anyway, so it will get you pretty close. But other materials we encounter, such as aluminum, brass and copper have much lower EV and an ES of 0.95 will not garner accurate measurements. Further Reading - Emissivity Coefficients of Some Common Materials - IR Education: Emissivity - The Principles of Noncontact Temperature Measurement (PDF) Thanks for reading. David RD Appliance Service, Corp. http://www.rdapplianceservice.com RD Appliance Blog

LI-NY Tech

LI-NY Tech

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