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
52 Replies
It's important to do an After Action Report- How do you know how much you need to charge if you don't know if the previous job was profitable? Reviewing each job, assessing it's worth in Time, Materials, and Labor may change your perspective on how much you should be charging. It may not be one or two jobs, but do the same project 3 times and see if it was really worth your while at that price point.
Best piece of advice!
Without being greedy, make sure you are only accepting assignments that are paying you what you are worth!
In its most simple form, start with how much money YOU want to takeaway from each service/job you provide. From there reverse engineer how much you need to markup your DIRECT COSTS and OVERHEAD to meet that takeaway number.
I'm an odd ball in that I mostly work on a time & materials for my handyman services. I know some handymen are moving toward fixed pricing, but I prefer the flexibility of hourly work. I give estimates, but still bill out hourly. So, to answer the question, my profit is built into my hourly amount.
When you are in the warranty service and have multiple manufactures changing their prices substantially for parts multiple times a year do you change your prices across the board or only with those company with part increases. I'm finding it hard to find balance between their terms and unity across our company?
Hello - new here and to running a landscaping business. When you are purchasing from retail stores at a normal price, how can I mark up an item by 60% (as seen in comments above) and not have customers give the hairy eye? Do you also charge for time sourcing these materials, plus this markup?
Thanks in advance for your input!Hey Heather, first you should do yourself a budget. The budget is going to tell you what margin you need to charge. Yours with no overhead might be 40% gross margin. Who knows. This will also get you away from asking other people what they charge. It doesn't matter what they charge they would have different overhead.
Also this is margin not mark up, I would try to loose mark up from your vocabulary, it's not the same as margin. Markup doesn't mean anything and doesn't tie to your budget.
Now if your budget that you made is telling you that you need to make a 50% gross margin to have a profitable year then it doesn't matter how you get it but you need to get it somehow.... 50% means your doubling your labour base costs and doubling your materials. But don't separate these out on a quote. Write something like "5 yards of soil + pick up and delivery" so it's just one line item and a price.
If someone asks you to "break down your price" you say "sorry we don't do that" haha. Just like when you buy almost anything else in life, you don't get a breakdown of labour and materials and you don't know the margin the company is making on everything you purchase.Incredibly helpful, thank you Byron. Sounds like I need to get a better grasp on markup versus margin and spend some time working out a budget.
Your note about clients asking me to break down the price, or give them receipts is also a big one, I've just been asked this and was not pleased with the request! Your framing of this makes sense and allows me to normalize saying no to this, so thank you again.
Pricing your services for profit in today’s economy requires a strategic approach. Here are some steps to consider:
- **Research the Market**: Analyze what competitors are charging for similar services. Look for industry standards, and consider local economic conditions that might affect pricing.
- **Calculate Your Costs**: List all your expenses, including fixed costs (rent, utilities) and variable costs (supplies, labor). This will help you understand the minimum price you can charge without losing money.
- **Determine Your Value Proposition**: Identify what makes your services unique. Consider the quality, expertise, and additional benefits you offer. Be prepared to communicate this value to your clients.
- **Set Profit Goals**: Decide on your desired profit margin. This could be a percentage of costs or a specific dollar amount you aim to achieve.
- **Test Your Pricing**: If possible, experiment with different pricing strategies. You can offer introductory prices, package deals, or tiered pricing to see what resonates with your clients.
- **Be Flexible**: Stay aware of changes in the economy and your industry. Adjust your pricing as necessary to remain competitive while ensuring profitability.
- **Solicit Feedback**: Ask customers for feedback on your pricing and perceived value. This can provide insights into whether your pricing is appropriate or if adjustments are needed.
- **Communicate Clearly**: Make sure your clients understand what they are paying for and why. Transparency can build trust and justify your pricing.
By combining these strategies, you can find a pricing model that works for both your business and your clients in today’s economic landscape.
Julie, Jobber should do a webinar on building a budget for your company / I would be happy to help. I think it would help a lot of people. Could include things like common budget %'s. Things like typical %'s on budget items like marketing / management / gross margin / net margin where should people be on these items. It was really eye opening for me when I learned these things. Helped my own business quite a bit. It's one of the most important things that companies should do that they don't.
Over time it's not uncommon to raise prices to match inflation. Good communication to clients will handle that.
For setting price points - Different industries have different profit margins. Setting the price is a tough one. You don't want to be too high or too low and obviously have a profit margin that is sustainable. The lowest hourly charge i've found sustainable in any business has been $60 per person. Other businesses have higher minimums. This is my personal experience.
We personally priced our Dog Poo Pickup service to be the highest price in the market for the pay as you go packages. And the cheapest in the market if someone pre pays for a year of service. This way the subscriptions not cover more than the cost to run the business on a monthly basis and the prepaid funds just collect in the back. This means we will never be in a deficit unless I make dumb financial decisions lol.
You want to get the knowledge of what it costs to run your business and break that down to an hourly cost. including all your expenses not just the cost to do the job. Then you will see the true picture of the cost to run your business and you can decide what you need to charge to be sustainable.
Depending on the service industry you're typically looking at a range of 10%-35% profit margin. Do your market research to see what other services are charging and you will get your ball park price and can strategize from there what you want to do.I crease my prices 10-20% per year to our regular customer.
