What Happens when Amazon Low-balls Prices: A Short Lesson in Economics

What Happens when Amazon Low-balls Prices: A Short Lesson in Economics

Did you know that you can order number of different types of services through Amazon?  It’s officially called “Amazon Home Services” (aka “AHS”) and house cleaning is one of them!  Here’s how it works:

  1. Someone searches Amazon (or Amazon displays in their sidebar) for a service.  They’ll see that Amazon can provide regular house cleaning, deep cleaning or spring cleaning, carpet cleaning, Move-in or move-out cleaning, and a few others.
  2. The customer selects, say, house cleaning and enters information (# bedrooms, #baths, square footage of home) and then sees an estimated price.  Click here to see an example.
  3. Amazon then adds the customer request (includes three dates and times the customer has selected as good for them) to the service provider app.
  4. You, the professional service provider, can see the request in the app and elect to request it or dismiss it.
  5. On the day and time agreed upon, you service the client.  They sign the app that you’ve cleaned that day and you take a selfie photo in front of their home (to verify that you actually did clean THEIR home).

Amazon uses Independent Contractors to fulfill these cleanings, and it’s not difficult to get set up as an AHS provider.  You submit information about your business like EIN or SS number (if you don’t have an EIN yet), insurance and workers comp info, and complete a background authorization for the company and also for any worker that will be in the client’s home.

Here’s what I like about working with AHS:

  • It’s not just another lead selling company (like Home Advisor or Thumbtack where you pay a fee for the lead regardless of if it ever leads to anything).  Fees are only taken out of jobs you are awarded and service.  AHS keeps 20% of all fees charged to the client so from this example of $170.52 the servicer gets $136.42, and Amazon keeps $34.10.
  • While the 20% is larger than lead fees from the others, there are no wasted fees paid.  For example, if I purchase 3 leads from Home Advisor at $25 each and only land one of them, the effective fee for the one I got was $75.  I can picked choose exactly which ones I want to request.
  • Above all, though, the best reason to use AHS is that they allow you to directly service the client in the future through your own business.  So after the first visit, they all go through my company and I keep all the revenue:-)

But true to Amazon’s core value of trying to provide all things at the lowest possible price (something they typically are remarkably good at), it’s not a good business model for home services.  When hiring a professional who will be in your home (cleaner, plumber, whatever) they will have access to YOUR HOME.  And providing the cheapest possible servicer is a risky bet Amazon makes with the customer’s belongings.

I’ve seen some prices on AHS for cleanings that after their feee would only be $20/hour.  As a cleaning company, I don’t even make any profit until I’m getting at least $30/hour, and neither will any other professional cleaning services company.  If I was an independent solo cleaner (not company, just me), I’d still be able to get $25-$30/hour all day long from clients.

A little bit about basic economic principles.  When determining prices, you must consider supply and demand, what your profit margin is, and what the market can bare:

  • Heavy supply and low demand pushes prices down.  Low supply and heavy demand drives prices up.
  • All professional cleaners (solo or company) have overhead that must be met.  Licenses, workers comp, travel time/gas, cleaning supplies, etc.  If a job doesn’t profit you and there’s no guarantee it’s anything but a 1-time cleaning, you’d be better off sitting at home than doing a cleaning for a loss.
  • When looking at what the “market can bare” the price must be acceptable to both parties; provider and consumer.  If price is too high, consumers won’t buy.  If price is too low, provider won’t provide.  The price needs to satisfy both parties.

In trying to low-ball prices, though, Amazon has cut their own throat unfortunately.  I cannot tell you how many cleaning opportunities I’ve seen in the app that are underpriced by 25-50% (so I obviously dismiss them).  Then, if no-one else requests to do it, AHS send out an email to the providers with the job details and price.  So by being excessively low, they end up having to cancel the cleaning because “no cleaning professionals are available”.  The customer is disappointed and Amazon has lost the opportunity for fee revenue.

Lesson: price based on what the market – BOTH sides of the market – can bare or risk loosing income.  You’d think Amazon is large enough to learn that, but they’re new to the whole services industry and will (hopefully) learn how to run that business better.  Or leave the market.

3 Sneaky Ways We Compete on Price…Even When We Don’t Mean to

3 Sneaky Ways We Compete on Price…Even When We Don’t Mean to

I wrote an article on why we shouldn’t compete on price, and what to compete on instead.  Here let’s explore some sneaky ways we might be doing what we don’t want to do!

To recap, if you compete on price (that is, if you present your low price as the reason someone should pick your service) you will lose in the long run and generally in the short run too.  When you compete on price, you will forever be justifying your prices and that’s no fun way to run a business.

So let’s say you’re doing a good job competing on other things than price (like quality, timelines, professionalism) and you’ve gotten a good solid foundation to your business.  There are still some sneaky ways you can accidentally compete on price:

  1. Offering a client a discount because they SAY they’ll refer you other clients in the future
  2. Offering a volume discount because it’s a bigger job or multiple locations
  3. Agreeing to use clients’ cleaning supplies for a discounted price

These three examples all seem reasonable to most people, but there are problems with all three that will eventually lead to problems surrounding price (which is what we are trying to get away from).

Example #1: Offering a client a discount because they SAY they’ll refer you other clients in the future

This is especially tempting to do for another professional that is in a position to give you referrals (say, a real estate agent or a leasing manager at an upscale apartment complex).  You’ve arrived at your prices for your services because you take into account all things that a professional cleaner needs to cover, and your costs don’t fluctuate based on if you’re cleaning for a friend, or just a random person.  Your costs are fixed.  So to be fair to all people, it’s best to price the same for everyone (except maybe your mother LOL).

If you lower your price for a real estate agent who promises all kinds of referrals, what generally happens is they often don’t refer anyone.  So you’ve given a discount for nothing.  And when they do refer, they often mention what they are paying for your service so the next person is expecting the same discount.  And so on, and so on.  It’s not sustainable.

Example #2: Offering a volume discount because it’s a bigger job or multiple locations

This only works for services that have only fixed costs and you will have some variable costs that go up depending on jobs.  For example, a single bank location may be priced at $500/month for you to clean.  If the bank has three branches, they may believe that they should get it for less than $1,500/month.  But in order to clean three locations, you’ll have to pay for travel time to the employees, thus you’ll have an additional cost for multiple locations so giving a discount isn’t appropriate.

Also, if you have a bigger job, lets say a large post-construction cleaning for a builder, you will have additional costs like ladders, shop-vacs, and additional cleaning supplies you might not normally need.  These additional costs need to be covered by the cleaning fee.

Example #3: Agreeing to use client’s cleaning supplies for a discounted price

This seems like an easy choice, however relying on the client to have working equipment, enough cleaning supplies on hand has left cleaners in a bind.  If the client’s vac is broken, you’ll end up using yours anyway.  What if her mop is 20 years old?  No thanks.

Consumable cleaning supplies like toilet cleaner or glass cleaner aren’t that expensive per house, it will really only save less than $1 per cleaning if you use theirs so it’s not much difference in price.

 

Competing on Things Other Than Price

Competing on Things Other Than Price

There’s a saying: “Don’t compete on price”.  You may have heard it a lot, and still not quite grasp exactly what it means.  If we don’t have a full understanding of what “not competing on price” really means, then we are sure to shoot ourselves in the foot.

“Competing on price” is defined as one or more of the following:

  1. Price is the only factor used in decision making for a product or service
  2. Price is considered more important than other factors when choosing a product or service
  3. Few if any other decision-making factors are even mentioned by us

How this looks in a marketing campaign is:

  1. “Get 2 rooms cleaned for $50”
  2. “We offer the lowest cleaning rates in town, and do a pretty good job at it”
  3. “Saving money is all that matters – call us today!”

So what’s wrong with competing on price anyway?  What’s wrong with offering services that are affordable?  Absolutely nothing – it’s when we offer cost savings at the expense of other things are important too that’s the problem.  You might only spend $50 with company A to clean 2 rooms of your house, but they were late showing up, making you late for work, they didn’t do a great job, and you ended up having to reclean it yourself.  You wasted $50, and it cost you a late-show at your own job.  It’s these too-low-to-be-good prices that are really more expensive in the end.

What should you compete on if not price?  Here are 10 things that are better for any company, in any city, in any economy to compete on than price:

  1. QUALITY: we do an excellent job cleaning your home
  2. QUALITY: because our staff is paid a living-wage, they are better able to go above and beyond what’s expected in your home
  3. COMMUNICATION: every specific request for your home is implemented and any question is answered before we begin
  4. COMMUNICATION: email, text, phone calls to the office and your cleaner any time clarity is needed
  5. AVAILABILITY: we have a large enough staff that even most short-notice requests can be met
  6. AVAILABILITY: if necessary, we can clean on the weekend or at night, with a shift-differential
  7. TRUSTWORTHINESS: we leave all properties securely locked and armed as appropriate
  8. TRUSTWORTHINESS: any problem, no matter how small, is communicated immediately to you and the manager
  9. RELIABLE: we arrive within our timeframes each visit, and return when we say we will
  10. RELIABLE: if we say we will do certain tasks for you, rest assured we will do them

The bottom line reason why you never want to compete on price is this: you will forever be justifying your price if you do.  And if you are a professional cleaner, you will have business costs that need covering that non-professionals don’t.  And you can never compete with someone who isn’t playing by the rules.  You don’t want to anyway.

There are some sneaky ways we end up competing on price, even if we don’t mean to.  Read this article to learn more.

 

 

What You’re Really Selling

What You’re Really Selling

You may be wondering what exactly I mean by the title of this post….obviously you’re selling cleaning services, right??

Well, no.  Not exactly.

When we think about what we are selling, we need to really consider what the client is getting.  Offering cleaning services is the method of the transaction, but it’s not exactly what they’re buying.

  • Your residential clients are buying more free time with their family
  • Your commercial clients are buying a clean image and safe work environment
  • Both are buying peace of mind knowing their home/business is safe and well taken care of

Focusing on the benefits of what your clients get from your services will do a few things for you.  First, it will redefine your marketing messages to what the prospect needs in their life.  Having a message that is clear and related across all your marketing materials will unify your business image.

Also, it will create the connection between people or businesses (which are really just people too) and you and your services.  It’s connection that drives human behavior of all sorts, and tapping into that will establish a relationship of trust that people and businesses rely on.

How this will play out in your marketing pieces is a consistent message with similar pictures that conjure up a need the prospect might not have realized they had – and that you are the perfect business to fill that need!