Is there a generally more successful pattern in service businesses.
A) High labor charges, low parts charges.
B) Median labor charges, median parts charges.
C) Low labor charges, high parts charges.
In chatting with many of my customers, my medium labor price and low parts charges seem abnormal compared to many of my competitors. Many seem to work on the low labor, high parts price.
An example:
A customer I gave a phone estimate to this morning told me a competitor estimated her $60 for an onsite installation of a modem, $20/hr labor and $40 for the modem
I quoted her $55, $45/hour and $10 for the modem.
She asked me a few questions about why the variation in costs. I told her its just different spins on how to run a business. I told her in my case “You are paying for what I know, not the parts I install.” And that because of my model I have no incentive to sell a part unless its needed since I make little if anything on a part sale.
Am I really out in left field here or is there a rhyme or reason my non-B school trained self is missing.
There’s no one right way and it depends on what kind of service you are in.
Psychologically, people may be willing to pay more for parts than labor. They get more of a sense they are buying something they get to keep instead of paying some stranger to install a $5 part they could buy and install themselves if only they were smarter.
On the other hand, charge $40 for the modem and the customer discovers its $9 from Best Buy and feels taken. Or you end up with people who say “I’ll supply the modem - you come install it for $20” which isn’t worth your time.
This was kinda my POV when I set up my plan. Also since many jobs do not require parts (network issues, virus cleanups). I figured charging something similar to retail would be the better choice since people can see what a part costs if the look online or at a computer store. CompUSA probably fantasizes about selling 56K modems for $40. Hell if I could call around and find modems for half that price I would feel like I was getting screwed.
This is along the line I was wondering like percieved quality/value based on price that maybe a $40 modem was a well known reputable brand (even if it wasn’t really) vs the $10 modem is a “cheapo chineese knockoff”.