The Hungry Home Inspector by P Nathan Thornberry :: Why Some Inspectors are Always Hungry for More While Others Just Go Hungry

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The Hungry Home Inspector

Why Some Inspectors Are Always Hungry For More
While Others Just Go Hungry

Chapter 13

Pricing Yourself Out of the Market

Today, this book is only $16.95.  Tomorrow, who knows?

The latest cycle of ratings from the American Customer Satisfaction Index resulted in a list of The 15 Most Disliked Companies in America. Amongst the fifteen, four of them were airlines.

United, Delta, U S Airways, and American Airlines all made the list.

If it had been a list of the 25 or 30 most disliked companies, every major carrier would have most likely made the list. When my wife called me and told me about this list as it popped up on her Yahoo! home page, I told her to send me a link. Then I asked, “How many airlines made the list?”

“Why do you ask?” she said.

I knew they would be on there. Not because they want people to be unhappy, but because of the airline industry and the environment in which they operate.

If you have to ask why people hate the airlines, you must fly as little as my wife does. Ask anyone who flies frequently, they’ll rattle off a list of issues.

Small, uncomfortable seating, inefficient boarding methods, delays, not doing enough for their passengers when there are delays, dated planes without televisions and Wi-Fi, not enough direct flights, fees for baggage, fees for sitting in an exit row, minimal level of service, and the cost to fly is too high and inconsistent.

The only airline I knew wouldn’t be on that list was Southwest. Why? Southwest is the only airline with a different business model. They book many of their flights on their own Website, they don’t assign seats, you don’t have to wait for first class to board before you do, and they don’t charge for baggage.

Oh, and every Southwest plane is the same, a 737. That means their crews are all trained for every plane in the fleet, and delays due to staffing are incredibly infrequent.  Plus their maintenance guys only have to work on one type of aircraft and they only have to stock parts for 737’s.

There’s a lot to be said for having something that makes your business unique, it can help you overcome incredible challenges like the primary reason the airlines end up at the top of the most hated list, pricing.

Airlines have taken fare models to the extreme with their availability-based pricing. Every time a seat is booked on an airplane, the price changes for all remaining available seats. Booking at the last minute is going to be incredibly expensive if there are only a couple of seats left.

Next time you’re on a plane, ask the person next to you how much they paid. It could be half of what you paid or it could be double or triple. The airlines charge as much as they possibly can for every seat on an airplane and they’re proud of it.

I believe that most inspectors charge too little. Not for what they’re offering, but for what they should be offering. Add some benefits to your inspection, increase your fee, but don’t go crazy.

I know of a couple of inspectors in different parts of the country who tried the “pricing on availability” model...and it hurt their business badly.

Even in a multi-inspector environment, managing such a pricing structure is messy. Even if you master the management of the pricing, you’re still going to run into the problem of your inconsistent pricing turning off agents and clients alike.

As it turns out, agents like consistency. They really don’t like it when they refer a client to your company and they get a price that is so far out of line with everyone else that it makes them look bad for strongly recommending you.

While these inspectors had a great concept when it came to implementing a progressive pricing structure and I applaud them for creativity, in practice it did nothing but lose them referral sources gradually throughout the busy season so badly that by the fall the availability pricing system had cost them huge amounts of money. Many times over what they made by charging a few home buyers basically whatever they were willing to spend during the busiest months.

It’s not just the pricing method that can lose you customers. The pricing itself can be a problem.  I know quite a few inspectors who charged what I would call exorbitant fees for inspections at one point or another, and usually started doing so in a great market. Not just high prices, but incredibly high prices.

It worked for them for a month or two, maybe even a year...but the idea that they could do fewer inspections for massive profits turned out to be short-lived as once again the rule that agents don’t  appreciate looking bad took hold.

When all of your competition is at or below $500 for their base inspection fee in your area, and you’re at $1500, at some point you’re going to lose the business. It’s that simple.

All it takes is one dinner conversation between your client and a friend of his who spent 1/3rd of what your client did and conceivably ended up with the same results, and they are calling their agent to ask them why they had to pay so much.

The agent may love you, he may be your biggest fan, but he can only defend your price structure to so many clients before he has to figure out another way to do business and may not even call you to tell you why you’re off the list.

Airlines can get away with this. There are only so many choices and they’re all similarly priced to begin with-Inspectors not so much.

The best thing to do to maximize profitability is to figure out whether or not you’re going to go multi-inspector or remain a single inspector firm. Then you can approach the pricing dilemma intelligently.

Let’s start with single inspectors who have no intention of ever being a multi-inspector firm. Maybe you don’t want to manage people, maybe your market isn’t big enough to support multiple inspectors, whatever your reason I understand completely.

So let’s figure out what hours you want to work, how many days you want to work, and how many inspections you can do comfortably in that time period.

Maybe it’s two per day, five days per week for a total of ten inspections per week, with two weeks off each year, for a total of 500 inspections.

Now go pick up a rock, throw it thirty feet in any direction, and you will find someone who will at this juncture give you very bad advice. They’re everywhere...people who believe they are giving you good  advice by telling you to raise your prices. They’ll point to an equation where a Website or a book somewhere shows that reducing your price by 30% makes it so you have to sell 66% more product to make the same profit and that by simply raising your price by 10% you increase profitability by 25% or some other nonsense that’s based on manufacturing a widget and then selling it out of a store that has  ridiculously low overhead.

These people know nothing of the home inspection business. They really don’t know that much about business at all. Parrots have the ability to repeat in the same way they do.

Let’s actually come up with a solution to deliver you maximum profitability and consistent pay. The kind of business you’d like to have for your own sanity.

The key to raising prices is not doing it initially, but rather once you have volume. Raising your price $20 on 100 inspections is a total of $2,000. Raising your price $20 on 500 inspections is $10,000. Which one would you rather have?

Of course the answer is the larger of the two, so the key is having that volume of business to raise the rate on. That means inspections coming in at the rate you need to in order to make business come your way-profitably.

In other words, figure out your basis (cost of doing an inspection) and price your inspections above that but below the highest prices in the area in order to give your marketing message the best chance at  success in acquiring new referral sources, also known as real estate agents.

Maybe you do 100 inspections this year, and maybe 200 next year. Don’t make a substantial move in pricing.  Keep building the number of inspections, and be patient.

Keep marketing, add to your services, make your company unique. Keep your referral sources happy and get your volume up toward 400 per year.  Now raise your price a bit, and make sure the business remains stable. Raise it a bit more, but keep in line with competitors to some extent.

Now go back out and market yourself with the higher fee schedule, and see if you can fill the rest of your schedule without too much difficulty.

If bringing on new clients to replace any lost referral sources proves either very difficult or impossible, you’ve hit a price point that your current marketing message cannot support. It’s not a debatable point-it’s absolute.

That doesn’t mean your prices retreat. If you’ve managed to keep the original volume you built up and your referral sources remain loyal, you just need to change your offering.

Add some USP’s. Do some sales meetings and educational sessions for agents. Hire a marketing representative to get your message in front of more agents.

Eventually you’re going to find the balance where you’re making a very good profit on each inspection while also refraining from tying a pricing noose around your business and making it impossible to acquire new referral sources to replace those that leave the business or go elsewhere for whatever reason.

For those looking to become a multi-inspector firm, the pricing puzzle becomes a great deal more complicated.  It’s part of a much bigger topic as well: The Multi-Inspector Mindset.