As a service provider, setting your prices correctly is essential to the success of your business. One common mistake I see made is when the technician becomes the executive and prices their installations based on how quickly they themselves could finish the job. If you are a technician turned owner or manager, chances are you are in the upper tier of technicians in your trade or field. But when you are developing or revising your prices, it’s best to think about the technician you were when you began. It’s also a good idea to consider Parkinson’s Law.
Work expands so as to fill the time for its completion
C. Northcote Parkinson
Simply put, if you give someone 4 hours to complete a job, they will take 4 hours to complete the job. If you give someone 8 hours to do the same job, it will take them 8 hours to complete the job.
I’ve seen Parkinson’s Law in action as an Operations Manager and I’ll admit I have occasionally lived it. Who am I kidding? This might as well be called Wiercinski’s Law of Foot Dragging. It’s one of the main reasons I must set tight deadlines for myself with almost everything I do.
Parkinson’s Law is also being put to the test in a pilot study in the UK that began on June 6th 2022 and will last for 6 months. 70 companies with over 3300 employees are going to test a shorter work week and move to a 4-day work week.
When creating your install pricing, consider the following:
- Price aggressively without being unrealistic. Create prices using labor times on the left side of the bell curve, but not more than 2 standard deviations from the mean.
- Don’t create prices based on how fast you think you could do the work. Take an honest look at your current workforce and use real and current numbers.
- Communicate your expectations clearly with your employees. Make sure everyone knows how you came up with your prices. Show them the value and don’t apologize.
- It’s easier to forgive short-term labor overages than it is to shorten task times later. Put another way, saying “I think you can do the same thing in less time” will be resisted or dismissed outright once expectations are engrained in the culture.
- Resist the urge to reward those that finish ahead of schedule with more work. Many people just want money or more time as their reward, not more work. Consider sharing saved labor costs with spiffs or bonuses. If you don’t punish people with more work or, heaven forbid, other peoples’ work, you won’t incentivize foot dragging.
- If you are going to “stack” jobs, make sure the crew knows at the beginning of the day and give them the support they need to meet their goals.
- If you price your services using a ‘day’ rate or a ‘half-day’ rate, don’t add menial tasks before or after the job. If you need to do this because of the size of your company, then you need to build it into your pricing somewhere.
Finally, understand that a majority of your people are not knowingly wasting company time, rather their internal clock and budgeted time have been set and they are simply abiding by Parkinson’s Law.
Suggested reading: Parkinson’s Law and Other Studies in Administration.