- You are here:
- Home »
- Blog »
- Manage Your Computer Business »
- How To Deal With Competition That Have Lower Prices
How To Deal With Competition That Have Lower Prices
I was recently reading a thread on the Technibble forums where a technician posted about an interesting problem he had. Here is part of the post:
I’ve been reading a few threads where people are saying charge what your worth, make people pay for your skills etc.
My problem is this i’m only just starting out so I need to be competitive, but there are two or three local competitors (I live in a small market town in the UK) and they are only charging £20 p/h with free call outs. If I only charge that i’m going to struggle to make a living.
It is a fairly common problem that many Computer Technicians encounter, but it also has a fairly simple answer. This technician should charge what he believes he is worth and what he believes to be sustainable. He should not worry about the cheaper competition. Let me explain:
The forum member mentions that they live in a small market town in the UK, so we need to take into account that the cost of living is going to be lower than someone living in the city of London for example. However, even taking this into account, his competitions “£20 p/h with free call outs” is just not sustainable.
The competition may be making enough to cover the cost of petrol and to survive personally, but not enough for their business to survive and prosper. A business owner also needs to be making enough money to reinvest back into the business for things like insurance or advertising. The main reason why computer businesses fail is because they undercharge.
Many new computer businesses will drop their price to gain their first few clients and this is fine, but a factor worth considering is the perception of quality. For example, without knowing either technician, which technician do you think will do a better job? The one charging £20 or the one charging £40? Most people will say that the £40 technician will probably do a better job, even though they dont know either. They are basing that off the perception of quality.
By having higher prices, it can also lead to higher quality clients. By being the cheapest person in town, you are going to attract cheap clients and cheap clients generally expect you to do more work for less money.
Of course, you cant just charge higher prices without being able to back it up. You need to justify why you charge more. You need to act professional, look professional, do professional work and because of this, your customers will pay a premimum for a professional to work on their valuable PC containing their valuable data. Once you get a reputation for doing good work that is well worth the money, it wont matter what your price is compared to the other business.
I would like to give you a hypothetical example of what can happen between a business that follows this advice and a business whos prices are as cheap as possible. Lets say that these two computer repair businesses started up next door to one other. One of them charges £20 per hour while the other one charges £45, both of them are starting with very little money.
The £20 p/h owner attracts people that are only looking for the cheapest repairs in town. The £45 p/h owner attracts people with a little more money and possibly other business owners. The cheaper guy may get more customers initially but as soon as he raises his prices, he may not be the cheapest technician in town anymore and we need to remember that his customers chose him because he was the cheapest. There is a good chance his clients will change their loyalties and seek out the cheapest technician yet again. The £20 technician may get lucky enough to become really busy but if he gets too busy, his quality and turn around times will drop.
Since his prices are so low he wont be able to take on any additional staff, he will possibly gain a bad reputation and guess where his clients are going to go? Right to the £45 guy that does great work for a reasonable price.
It wont just be the cheaper guys customers that the £45 technician will be getting, it will also be new customers since the cheaper guy now has a bad reputation for doing bad work. After a while, the £45 business is making double the money the £20 business is making and doing only half of the work and because of this, he can afford to get insured and mention it on his new and improved advertising.
If you were a business looking for an IT guy in the local Yellow Pages and both of these businesses had ads side by side, would you choose the £45 guy who is insured for your business? or the £20 guy? Chances are you would choose the £45 guy. It seems the “safer” choice since the ad is all the information you have to go on.
Fast forward two years and you will probably either see the £20 guy with a bad reputation or out of business. The £45 guy would be a far stronger business because he is sustainable, is able to reinvest money back into the business and has a quality client base made up of businesses and people who will pay a good price for good work.
Session expired
Please log in again. The login page will open in a new tab. After logging in you can close it and return to this page.
This is an excellent post. Many starting businesses, including mine, should be more experienced when making these type of decisions.
Having a mentor, like this websiteBryce, offers a significant advantage.
I wish I had learned about it when I started, I’d have made much better decisions.
Thanks!
Great post. When we got to town our prime competitor was charging less than I wanted to charge. So we came in higher than him but lower than I needed. After a few months I saw he had raised his prices to match mine. So I raised my prices. The customers didn’t notice and I was closer to what I needed. He raised his. We went through one more cycle of that and I was about where I needed to be.
Talked to someone who told me that the guy (my competitor) had been losing money badly before I came to town but was now doing OK. Turned out he didn’t believe in charging too much and was going broke.
Best thing that happened to both of us was honest competition.
Good post. I would add, residential customers are a necessity but will not make you a great income. Business customers will! All my business customers also have 24/7 monitoring thru Zenith Infotech that I mark up significantly, like around 1000%. I have cash flow and my business customers are happy because I can normally tell them ahead of time that a server or a workstations is failing and we can replace it during off time rather than having it fail during prime time (read tax season for my CPAs). It is hard to teach folks that the $500 computer is the inexpensive part of Total Cost of Ownership so they see the value of $100 in maintenance.
I completely agree with the comments above that encourage you to charge what you need to charge in order to make a living and not worry about what others charge. Your expertise and professionalism will be judged on your prices before you do a job and you will find that more people assume you can do a better job for 40 GBP per hour than the person offering the same services for 20GBP per hour…
I would also recommend that you take a look at CCNA courses as these can dramatically improve your reputation for getting new jobs.
I researched how much all my competition is charging (anywhere from $40 to $120 per hour) and settled right in the middle at $80 per hour. This turns out to be a fair and attractive rate for my customers. It’s a perfect rate for me too, as I don’t have much overhead so I make enough money to live on and then some.
Another point to make about the small town environment (which I’m in) is that reputation is everything. Do a good job for a few people, and word gets around. Price is secondary.
Randy: right on spot: “price is secondary”
Also, regarding competition & marketing & prices: price is not the prime thing to look for, so… don’t do it with your competition. The cheap guy charges £20/h but the question is “how much does it cost to the client?”. If it takes him 4h to do something you can do in 1h, then you (£40/h guy) are way cheaper.
I’ve been doing computer repair, setup, web design for residential and commercial since 1998. My wife and I moved to a new town for her work and of course I relocated my business. After a while I received a phone call from a local guy looking to partner up. We talked and we both had excellent philosophies on business and customer support. We partnered up about a year and a half ago and at that time we charged $65 per shop hour for pretty much everything and we charged $90 if we had to disassemble any laptop for repairs.
At the time that we opened we had one competitor, they did well since they were the only ones in the area. Our pricing was very competitive but we concentrated on 1-3 day turn around times and the process of educating the customers as much as we could without giving away trade secrets. This competitor made a few bad choices with a merger and became a repair shop that took a month to fix a single unit. Then all of a sudden they just packed a u-haul at about 8 at night and disappeared. They kept the building and in about 2 months they returned with a new name. This time they tried to under price us.
We decided it was time to re-organize our pricing and marketing strategies. Every shop has a few things they do that are $20 here, $35 there and so forth. Such as data backup and hardware installation. After a lot of homework and number crunching, we decided to go with a flat fee strategy, plus parts.
$69 plus parts for 1-3 day turn around
$99 plus parts for same day service.
Business fees are of course a little higher and we bump the price $20 for service calls.
$89 plus parts for Residential Service Calls with a 1-3 day response.
Regardless, of the little differences, the shop fees for a 1-3 day repair is always the same. $69 plus parts.
Our customers love this and we have had customers drive an hour or mail in their systems just to save the money and have the added security that the fee is always the same.
Are we making money, Yes. The reason is, we added up all of our common repairs and the prices it would’ve been normally (hourly). Then we just took the same amount of repairs and added them up as a flat fee basis, our profit margin actually raised by almost 25%, not to mention the marketing advantage of being the only shop that has Flat Fee Repair.
On the average now, we actually make around $75-$80 per shop hour instead of our old rate of $65.
Our returned competitor has closed it’s doors again and is “relocating” to a new location.
I can’t add anymore to this article or take anything away. You said it perfectly. I struggled to get a budding landscaping business off the ground once and all these concepts and ideas apply perfectley. Thanks.
I’ve come to find that those who are offering lower rates (really low rates) are “not sustainable” for a reason. Some have something to hide as they are just out to get the client “hooked” and then charge for incidentals and the like. There’s always a marketing strategy there, though not always best integrity and all since not everything is “up front”. Most of my clients have not complained about my prices which are right for the area and the work and the on-site services I offer. I also offer offsite where the client can bring to me for a much reduced rate and that helps fill a niche as well. Once clients come to realize your worth and quality they not only want you again but will gladly take your cards and promote you to others.
I had a friend in the aircraft support business. A competitor came into town who undercut his prices. Tom’s response was, “I guess he knows what his services are worth.” The same response should be appropriate for anyone whose data is mission critical.
PS. the competitor folded up after only 2 or 3 years.
A side not: I sometimes over quote existing customers just so I can deliver at under the quote. It makes you look like you are really caring for them and then if you accidently under quote, you can raise the delivery price and they wont think you’re being unfair. Only works with qlients you have a good relationship with who you know will take the quote even when it’s over what it should be.
I love the way figures get tossed around when the subject of how much to charge comes up. It always amazes me. I live in between two small towns. Their are 8 different shops I compete with that I know of right off and a “tech” in every family it seems. Even the larger shops here can only get away with $50 per hour. Their is no way a one man operation can charge that much and get away with it.
The theory that if you charge more you will get higher quality clients does not seem to hold true here. Around here if you charge more you just don’t get any business.
You can’t just charge what you think you are worth. If that be the case I don’t know anyone who would charge less than $500 per call out…lol
I agree with gunslinger above, we are in los angeles and there’s a few other shops right close by within walking distance. So you have to find out what the other shops charge.
it is always a tricky issue to price your stuff. in my area there are no less than 12 such outfits. i opened up anyway to gain some field and retail experience. but if you are in such an extremely crowded area, you probably need to consider relocation.
in my area the people are so cheap they won’t even take 50 for laptop disassembly labors, go figure
Over the long term you don’t want people comparing you on just price alone. It is your expertise and knowledge that should set you apart. And if you use that you can charge a higher rate.
After 25+ years as a computer consultant in SF Bay Area, I can say that there are ALWAYS those who will charge less. To this, I used to tell clients (1) anyone who charges so little has to have a ton of clients to make a living, since you can’t bill for every hour of the day. These guys are extremely busy and their availability in case of emergency is very questionable, and (2) after all these guys have messed up your system, call me. No one works faster than I do, and I get it done right the first time. It’s hard to for a client to argue with that.
If you are going to charge premium rates (my rate for new clients was $175/hr on-site, $125/hr in the shop, and that was 9 years ago) you have to differentiate yourself from the masses, either by skill, availability, speed, or whatever. Make it very clear that there will always be $35/hr guys who know very little, have short experience, and are more likely to cause additional damage. I used to tell prospective clients “I clean up after these guys, so go ahead and call one, then call me. And BTW, there’s an additional charge for straightening out any extra mess caused by incompetent technicians” Don’t try to compete with these guys. It worked for me…put yourself above the crowd and be proud of it. You’ll work less, make more, and have better clients who wouldn’t think of going elsewhere.