How do you know you’re undercharging?
How do you go about changing that?
We have a few metrics we look at...
- P&L Statement - Aim for 50% Profit Margins or higher and 15%-20% Net Profit
- Healthy conversion rate. Aim for 42% to 52%. If you conversion rate is too high, then you are probably under charging.
- Are you overbooked? Probably an indication that you are charging too little.
We simply raise our prices based on our cost of goods sold going up, or any overhead. If our cost of goods sold goes up, then so does our price. If our overhead increases, then so does our price. We try to keep our profit margins above 50%. If it cost us $3000 to do a job, then we are going to charge $6000 or more.
If you know what it costs you to produce a job, then charge double that. After a few jobs do your job costing and make sure you are at 50% profit margins or better. If not, then raise your prices again and keep adjusting.
We aren't perfect at this but we try to look at our numbers often and adjust as necessary. Looking at your numbers daily helps you to make adjustments as needed. Sometimes you have to lower prices. Knowing your business will help you know that. You can try to know everything that is going to happen day to day but you cant. Forecast as best as you can. Make data driven decisions. Adapt and make changes as needed.
