Finding out the answer to the question “how do I raise my prices?” is going to be a challenge. After all, you don’t want to take people for a ride, or find you’ve unintentionally sent them off to a cheaper competitor...
At the very least, you want the prices you’re charging to cover your expenses. Even better if they give you the flexibility to pay bills ahead of time, or get supplies ordered early. The best case scenario? It's when you’re earning enough to do all those things, whilst comfortably and consistently reinvesting in the growth of your business.
Of course, there’s more to achieving these goals than simply raising your prices.
Whether it’s the type of work, the frequency of jobs, or even how much customers are willing to spend: these factors all play a part. However, if you can understand what it takes in order to meet each of those previously listed milestones, thanks to a help from your data, you’ll be well on your way to price your services in a reasonable way.
To help, let’s review a bit of expert advice before diving in to the following five tips:
- Tip 1: Gain insight into your expenses.
- Tip 2: Generating new leads.
- Tip 3: Figuring out how to implement a ‘Lean Strategy’.
- Tip 4: Don’t be vague: provide clarity.
- Tip 5: Trust in your software solution.
Input from an Expert
Obtaining the data needed to set appropriate prices can take a lot of time to generate, not to mention that seeing the woods from the trees can be difficult, too. However, if you’ve organised your data well (with a helping hand from good software), you’re bound to see the results.
Of course, we don’t want you to just take our word for it, which is why we sought the assistance of Jake Gibson, founder of Phyxter, who’s acute knowledge of management software for HVAC, plumbing, and electrical services in the US and Canada, has informed the advice we know you’ll find valuable.
With his help, we felt it necessary to explore some key managerial decisions to keep in mind, in addition to a few other concepts. These tips can help you take the steps to better decide what to charge your customers, whether it’s for a simple boiler installation or more complex commercial work.
Jake’s initial insights affirm what many of us may already know at heart, but not always appreciate: though it’s important, breaking-even is not the definition of success. After all, it’s a precarious place to be. Instead, you want to be as far over the line as possible to ensure that your business doesn’t just stay afloat, but rises above the waves of uncertainty.
So, with Jake’s help, here are 5 tips that will help you out when it comes to pricing. Keep in mind we’ve also prepared a handy guide and an editable spreadsheet to help out with some of these calculations too! Let’s dive in:
Tip 1: Gain insight into your expenses.
The first step in understanding how to price your services is to figure out where your money is going. The best way to do that is to list your expenses...all of them.
A more robust way to do this would be to gather your receipts, access your bank statements, or contact your bookkeeper. Knowing and understanding where every penny is going is critical to the success of your business. It’s also a great way to see where you could be overspending or plug any unexpected leaks, too.
For example: if you buy all your stock from the same supplier, then you could consider getting competitive quotes from various other wholesalers to make sure you’re still getting the best price. It’s easy to stick to well-known suppliers, but it’s true you even if you have a loyalty discount, shopping around could help you negotiate even better rates with familiar faces, or lead you to find a great deal with new ones.
Looking at the figures
Here is a calculation that can help get you started; Let’s say you have a mobile phone bill for a few of your engineers that comes out to £50/month, or £600/year.
If your business operates with a net margin of 20%, then you must generate £300 in revenue to make £600 in profit to pay for the bill. Next, if you can decrease your cell phone bill to £40/month or £480/year, then you must generate approximately £2500 in revenue to earn the roughly £500 in profit needed to pay your bill.
Let’s explore this concept on a grander scale: Let’s say overhead expenses of £12,000/year require £60,000 in revenue to generate the needed profit (at the 20% net margin). If you can decrease your overhead to £10,000/year, you’ll only need £50,000 in revenue to cover your overhead expenses.
Therefore, every £2.00 saved equates to £10.00 earned.
Next, you’ll need to write down your yearly living expenses, according to where your business is based. Then, add up fixed costs like rent and bills for office space, office supplies, and devices, any management software, vehicles and maintenance, fuel usage, trade tools, insurance, etc.
You’re probably not going to be working 365 days/year so don’t forget to subtract weekends, holidays, and any vacation you plan on taking. Don’t forget about the taxes!
You might find it easier to speak with an accountant if you’re not so confident about doing this yourself, but for an overview, we’ve put together a quick guide as well as an editable spreadsheet that you can download, fill in the basics, and crunch the numbers to help give you an idea, as well.
You can download it by clicking her to jump to the end of the article.
Tip 2: Generating new leads.
For this tip, you’ll need to write a list of all your lead generation channels. If you’re unclear what that means, it’s basically thinking about how people find your business. Word of mouth, paid advertising, emails, leafleting, and any others you can think of.
There’s no excuse for relying on word of mouth alone, even if you’re a small business. There are all sorts of low-cost ways to get your business’ name out there, even if you think you can’t afford it. Besides, the profit margin for your business is hugely influenced by the number of leads you’re getting. It’s simple supply and demand: the more leads you have, the more you’ll be able to charge for your services.
If you’re looking to improve your lead generation strategy then you need to approach it with diversification in mind. This should be on the cards no matter the size of your business—after all, as recent times show, the way people interact with businesses can and does change—so it makes sense the more ways you have for people to find your business, the more likely they’ll use your services.
Start with the following:
- Build a website: with a minimum of 10 pages to kick things off, they should have at least 1,000 words on each page. We’ve provided analysis and advice on what a great website looks like. We’d like to emphasise that whilst you can learn from your competitors, it’s important to avoid plagiarism; not only will Google penalise you for it, customers will spot it too, especially if they’re shopping around (and they will be).
- Use Local Listings: Google My Business, Bing; basically put your business everywhere you can for free, with a short bio and a link to your website. Side note, there are hundreds of places online to put a business listing for free.
- Use risk-free lead generation platforms: You can certainly look at Phyxter Pro for examples, but there are plenty of UK based options to help you out, too. Checkatrade is one great example that you should be looking at! For contractors, do your research and take advantage of what you can find.
- Use SEO: Search engine optimisation is any manager’s best and worst friend: being both a wonderful thing, but also a little tricky to get a handle on. Don’t let that worry you though, even a basic knowledge of SEO can go a long way.
Essentially, it's about optimising your webpages to target specific themes/concepts that customers are looking for and it’s a great way to encourage search engines like Google to help prospective customers find your business online. If you’re a complete novice, The Google Starter Guide is a great place to begin.
- Seek partnerships: If you’re an independent plumbing business and are looking for innovative and inexpensive ways to generate leads, it helps to look for companies that are a similar size to yours, in other trades, and seek to partner with them on advertising. Local leafleting can be a great thing here.
Say five of you group up to invest in sending out leaflets detailing “the top five local contractors in (your area)”. Your business will be seen by five times as many potential customers, with more variety and the support of other businesses promoting yours looks great at face value, too. A little organisation can go a long way here.
Tip 3: Figuring out how to implement a ‘Lean Strategy’.
This doesn’t mean getting aggressive and cutting costs by “trimming the fat” i.e. the idea that lean strategies are only used to get rid of employees, is, quite simply: not true.
The general emphasis is on removing that which is holding you back and proving to hurt profits. While yes, it could be an employee, it could also be because that employee can't work efficiently because there are processes in place that are complicated and inefficient. As a result, time, money, and productivity are all lost.
The whole point of a lean strategy is to ensure that your business runs as profitably as possible, and thus allows your company to keep people employed for as long as possible.
We’d highly recommend that every business look closer at lean management strategies and ways to improve productivity. Job management software is a great way to do this, allowing businesses to work faster, smarter, and more collaboratively, whether you have people in the office, working from home, or out in the field!
A connected, cohesive office (even remotely) works better, together.
Tip 4: Don’t be vague: provide clarity.
After you’ve carved out your costs and the most effective strategies for your business, you won’t just want to break-even at the end of the month.
This is where you can add your profit rate.
Keep in mind that, while you don’t want to be overly ambitious and put off customers, this is the first place you’ll be shaving off the £'s if a customer is trying to negotiate a lower price for a more extensive project. To help, the next step is to start calculating your job-specific additional costs.
It will take a while, but the more detailed you are, the more accurate your job costing will be and you’ll alleviate the risk of undercharging. Don’t forget that little expenses add up quickly and if you’re in doubt, then our downloadable spreadsheet could lend a hand.
Depending on your relationship with your vendors, you could also add a profit margin to spare parts since you’re saving the customer the trouble of sourcing these themselves.
This can be a good additional source of profit for you, as the customer will perceive the extra cost as value-added for their own comfort rather than yours.
However, adding more than 1-3% to the store price can look like you’re trying to fleece them so it would be a good idea to keep it reasonable.
Understanding how to price your services doesn’t mean just understanding the average markup for plumbing parts or electrical tools. In addition to that, you know that a good relationship with your vendors can even lead to lower costs-per-item than market prices, or even exclusive deals on items that customers can’t get anywhere else.
It's true that you might start getting a bit apprehensive in seeing your prices go higher and higher. We wouldn’t blame you if you’re already thinking of squeezing that profit margin down, but keep in mind that this will prevent you from squeezing it any further when you really need to. After all, this assessment is about finding a reasonable middle-ground that helps you make money, and keep customers happy!
Again, dropping prices just because the competition is charging less, doesn’t mean you have to go lower yourself. Charging a fair price will signal to the customer that you’re a quality trades business and people who understand this relationship are the kind of customers you want to have, too.
Tip 5: Trust in your software solution.
It wouldn’t be appropriate for us to leave this section without going into a little more detail about the importance and impact of job management software.
Many of you reading this will already have some form of software in place, it may even be Commusoft that you’re using, but it’s a clear sign that you’ll be familiar with using tech and that you understand the benefits it can bring to your business.
The question, however, is: "Are you certain you’re making the most of all the features available to you?"
It’s easy to go with the solutions that you know you need, but it’s also easy to overlook features that have been designed to fill in the gaps in places you might not have expected.
🔎 Learn more at a glance!
Infographic: 7 Software Features You Didn’t Know You Needed!
We want to help our customers as much as possible (as well as those who aren’t) because...why not? To point you in the right direction, you might be interested to check out some of our latest resources, with guidance featuring new tools you can use, videos, and demos to highlight specific cases where software that can make a great impact.
By following the steps we’ve outlined, and putting guidance to use, even those of you who are well experienced may well have something to gain! If you found this article helpful, make sure to reach out and let us know. We’d love to hear from you.
The Takeaway and Checklist Giveaway
If this all seems like a lot to take on at once, it’s because it is! Making these decisions takes time and will need to be reviewed regularly, but that doesn’t mean you can’t get started and give yourself a head start with a useful tool.
As mentioned earlier, we put together a 10-step checklist that will walk you through the process of pricing your services. Click below to download it, together with an editable spreadsheet with pre-set formulas to make setting prices a doddle!