In the first installment, I started talking about the importance of holding the line in the face of unreasonable requests from clients to discount your labor charges.
As I am sometimes painfully reminded, there’s a difference between a hobby and business. Specifically this: If it costs you money, it’s a hobby. If it makes you money, it’s a business. As I pointed out last time, the direct approach when a prospective client expects you to charge less for your labor is to say no. When told no, one of two things will happen: The client will either walk, or they will talk (negotiate with you).
With regard to the ones who walk, it’s usually for the best. Price can be a very effective filter to weed out prospects who won’t enter into a mutually beneficial relationship. As I was told long ago, you can’t chase every rabbit, nor should you. For the ones who are willing to talk after you’ve reset their expectations/shot them down, there’s an opportunity to educate them and close the sale on your terms.
It’s important to remember that, in negotiations, there are two rival sales pitches competing with each other. Leonardo DiCaprio’s character in “Wolf Of Wall Street” put it best when he said either you sell the client on your story, or they sell you on theirs. So, who’s the better salesperson going to be?
I don’t want to dig into salesmanship this time around, except to say it’s important to express the competence and expertise your team has to justify your rates. Also, make it clear that you very much get what you pay for when it comes to labor in the AV business. If they do find a contractor who’ll take what they’re offering, they may be unhappy with the end result. If that fails to impress them and they walk, so be it. You did your best to educate them.
Ensuring clients respect your labor rates is on the front end of your efforts. On the back end, it’s important to understand what your labor costs you, and what you need to bill in order to be profitable. Because regardless of whether you’re billing out by bid or hourly, you need to know what goes into the mix.
It’s imperative that you understand how long it takes your team to perform their tasks, and then manage that to ensure efficiency. Even if billed hourly, you can still be unprofitable if your team’s processes are inefficient. Setting standardized processes is the most elementary way to support labor profitability.
One of my old bosses and mentors used to remind us “what gets measured gets managed.” So your task is to ensure you know how to do that. Once you have a clear picture of what your labor costs you, then you’re in a position to know how much to charge to turn a profit on it.
I’d like to point out that prospective clients’ wishes to pay less for labor is a desire that’s in sharp contrast to reality. In the past year of the pandemic, the overall trend has been for dealers to raise their rates. So go figure.
I’ll leave off by pointing out that labor is actually a lot like inventory; it’s both overhead and a source of profit. And like inventory, you need to know how much you’ve got and what it costs. You can’t let it go out the door without getting paid for it.