Why a Service-Based SME Shouldn’t Give Away “Free” Estimates
The reality about free estimates is that, in most industries, provided you have your customer service and selling skills down; only 1 in 3 estimates end up resulting in a job (this figure would be grand for a hard working door-to-door salesperson, right?) However, for most SME service businesses, this dangerous practice ends up driving your customer acquisition costs way up, and customer lifetime value (CLV) down by as much as 20% or more.
This is because estimates take both time and money out of yours and/or your salesman’s day. It costs money (vehicle, fuel, insurance, etc.) to transport you and your gear to a prospect’s location. It takes time to survey the job, prepare a quote, then sell the customer.
Free estimates might work for certain industries and can certainly be cost-feasible for large businesses with loads of manpower and a dedicated sales team. But, for the average SME, they damage your bottom line, hurt the customer’s perceived value of your service, and can even end up driving you out of business.
Keep reading to learn a few reasons why it might be better to charge for estimates than to sacrifice revenue on time and expenses, often for very little benefit.
1. Estimates are not free (for you)!
The only one not paying anything for your estimate is the customer: Ie., the person in need of your services. Only offer free estimates until you have enough reviews/references to back up the claims you make to customers. Large high-volume businesses, such as auto repair franchises (ie., Midas, Meineke) and large general contracting-type firms have the available manpower and reputation to offer free no-obligation quotes. They also charge a lot more for their services than SMEs and can easily recoup their losses.
For an SME who can’t offer accurate job quotes over the phone and/or from a storefront location, the time, money, and potential materials wasted traveling to the prospect’s house and surveying the job will eventually result in one of two things happening. Neither are good for business:
- You’ll have to drive up prices (by as much as 30%) to make up for travel and time expenses to give free estimates.
- You’ll eventually realize you’re actually losing business by spending hours on the road every month, potentially closing the doors when expenses outweigh profits by too high a margin.
As a growing SME, we often have to sacrifice time and labor to get the business off the ground and running smoothly. Otherwise, it’s tough selling your service to someone without any reviews and references to back up your claims of being able to get the job done. Once you’ve reached this point, it’s time to realize a true professional doesn’t give away services unless it’s to a charity.
2. “Free” is the super-secret word tire-kickers can’t resist!
If this is your first time hearing this, feel free to give me a shout out on your favorite social media. It’s my pleasure to be the reason this reality of human nature finally dawned on you today! In all seriousness, people who’re serious about getting you to do a job for them, who want it done right the first time, won’t have any problem asking around for paying you for your time, if you can provide solid examples and references of your previous jobs.
Those looking for the cheapest deal possible probably don’t care about quality, and after hearing your quote, will ditch their plans in favor of saving money on car, home, or electronics repairs – be they essential like a much needed brake job on their car, or new rain gutters on their home – or simply an item on their wish list like a bathroom remodel, or fancy landscaping job in the yard.
3. Free estimates reduce close rates.
Yes, this ties in with number two, but takes it a step further. You see, when someone has to pay for an estimate, they’ll certainly do more snooping/asking around to find out if you’re worth the trouble, before contacting you for an appointment. This sales-friendly phenomenon will definitely work to your advantage, provided your personality meshes with theirs:
- As mentioned, you’ll deal with a fraction of the tire-kickers you did when giving it away for free.
- The perceived value of your service goes up the minute you say “I charge a very reasonable $XX.XX for estimates, which includes travel to your location and up to an hour (or two) of my time preparing the estimate and answering all your questions.”
- Since they’ve already chosen to pay you for the estimate, they’re more likely to extend their investment to the actual job – they actually lose money if they don’t accept your bid, right?
Again, none of this will apply to you if you have an objectionable personality that turns people off. In that case, it’s time to pay someone to go out and act as the face of your sales team!
Share your thoughts…
After everything I’ve pointed out to you today, will you still offer free estimates? If so, please share your experience in the comments.
Is it because your industry is ruled by the almighty “free” estimate and you’re afraid to go against the grain for fear of losing business?
Do you feel free quotes just don’t hurt your bottom line enough to justify the risk of changing things?
Main Image Credit: Laura LaVoie/Flickr
You might also like
Marketing your new business is easy, as long as you have a lot of money behind it. Unfortunately, this isn’t the case for most startups so we have to put
What tool or service do you use to easily implement affiliate marketing on your business website or blog? The following answers are provided by the Young Entrepreneur Council (YEC), an
Something far more important than pumping a ton of traffic to your site is having an optimized conversion funnel, which can easily double your sales without doubling your traffic, and