How do you go about pricing your services for profit?
Communicating cost increases to your clients aren't the easiest yet it has to be done as a business continues to grow.
Thoughts?
Forum Discussion
68 Replies
Everything starts with building a budget! This budget is going to show you what margin you need to make to complete your budget goals at the end of the year. So if your budget is telling you that you need a 50% gross margin then now when you quote you know you need to at the very least add up your costs and double them. I would say if your budget says 50% then you are quoting around 60% gross margin. This give you a profit buffer for some bad jobs and things like team days and just general slippage. Get that gross margin as high as you can and you will be a very happy business owner.
Thanks for sharing such a detailed breakdown! I completely agree that starting with a solid budget gives you a clear direction on pricing. Your point about aiming for a higher gross margin to account for slippage and unexpected costs is spot on—it's great advice for avoiding surprises down the road.
True - we set the budgets at 50% Gross MU (double the costs) and end up with a GPM of between 40% and 44%. The starting point for profit has always got to be your gross
I'd love to chat with you sometime. I just joined the community and I'm an electrician in the Denver area. I have found it difficult to build a budget in my type of service based electrical work.
Absolutely, my email address is cory@vancityelectric.ca reach out and we can hop on zoom. Cheers.
Always explain reasons why and include your team as part of the driving force as usually they are!
price transparency 🤌 i love that. Not only does it foster understanding across your whole team but can potentially empower them, improve accountability, and increase satisfaction. 🙌
This is one I would love more feed back about. I just went from a 3 person team, me and an installer, to a 5 person team. Now I have a person answering the phone, making the schedule and doing gofer tasks for me as well as an install team that can work without my labor contribution. Now that I am off the tools and the phone I have time to sell way more than I ever have before. However, my payroll cost is way up and my profit has disappeared. I raised my prices today but worried how to tell my long term clients.
3 people; Installer, pt bookkeeper, myself.
Remember that as your payroll went up, your value went up too. Your company is now more responsive ever with a dedicated office staff. More techs on the road means less scheduling glitches when one calls out. more trucks on the road means less hiccups should one break down. You may still offer the same service, but now you do so in a more responsive, reliable, and quicker way. if i was you client, i would pay more for that...
There’s a sweet spot you need to find after hiring full time assistants.
Better customer service will create new customers and with the right protocols and setup you can increase income without increasing your customer service budget. Virtual assistants are a good way to keep that budget down as well. I use virtualsolutionsmb.com
Finding a VA is top of my list right now. Thanks for your answer
I've done similar this year in that I am stepping away as much as I can from the active production side of the business, and like yourself we're seeing payroll really bite, but I think its all part of what you might call growing pains in our industry. You have to find a sweet spot where the ratio of production to non-production staff works for you. I think for a small business like ours the ratio is around 4:1. In practical terms that looks like 8-9 employees on production with non-production being myself (production manager, sales and marketing etc) and my wife (admin).
I utilize a budget to make sure we are properly recovering costs and passing them on to our clients.
Smart approach. A solid budget can really help with staying on top of costs for sure. How do you typically communicate those price adjustments to clients?
I built a calculator in excel with formulas to convert measurements into amount of materials necessary. It simultaneously will factor in our supplier's pricing to the materials and calculate labor based on the size of the job and other factors. I keep the material pricing and labor rates up to date, giving us a good idea of the internal cost will be before we even quote a job.
Cost increases are tough. Jobbers email campaign feature is a great way to communicate changes to all clients across the board. Most importantly, be authentic about it. Customers know it costs money to run a business
I think gradual increases are not uncommon. People know that almost everything cost more money and those cost continue to rise.
Hi all.
New here. Yay! all responses are good but I did not see anyway talk about the inflation percentage rate to be considered. At one time I had the same problem. My CPA told me that I needed to add verbiage on my yearly contracts about the expectation of charging more when the inflation percentage rate would increase e.g. between an 2.5%-4.5% annually. So I try to look at % to help me determine to prepare for an increase or not.
I think staying on top of your expenses overhead/operating/labor costs and crafting a good man hour rate from that coupled with being as detailed and thorough as possible when creating quotes is best for ensuring profitability.
We have always stuck to our guns in terms of pricing when it comes to quotes to clients no surprises costs but it works in our industry, if there is something that is outside the scope of our quote that comes up during a project it is quoted additionally so there are no surprises. Our business thrives on re-occurring jobs with our clients whether it is weekly, monthly or annually.
Yess! This is part of every business, no matter what industry.
I believe changing your pricing incrementally over time is the best route for home service businesses. They're too small for customers not to see changes, so best done over a period of time instead of all at once.
Example: Raise your mark-up on Labor AND Materials 5% every year
