Yes, you should increase your prices!
Small increases can significantly improve your profitability – without extra work. If you have $1 million in sales per year, just by increasing your prices by 5%, you would add another $50k to your bottom line.
That means you make an extra $50,000 per year COLD HARD CASH. Most tradies can find this 5% if they are more efficient and/or buy better. But that’s a topic for another day. This is about putting up your prices. It's the QUICKEST way to improve your profit.
Q: But Dan! What if I put my rates up and lose clients?
A: Even if clients freak out and 20% of your work drops off, you'll still be making the same amount of net profit. (Yes. The same. For less work.)
So would you lose 20% of your work from a small 5% price increase? UNLIKELY. In fact, if you do it the right way, most clients won’t even notice. Obviously, I'm assuming you are a good tradie who does good work. You want the clients who are prepared to pay a bit more for a quality job. If someone wants to go with the cheapest option, let them. You've probably noticed the price shoppers are usually the worst kind of clients anyhow. The truth is you will always lose some quotes no matter what level you set your pricing at.
Do you really want to be one of the cheapest?
The thing is, most tradies haven’t increased their rates for a long time. Maybe you know you should but you’ve just been too busy.
Or maybe you are worried you’ll miss out on work.
Here's the problem though
- If your rates are too low, you won’t be able to make much money. It's just math.
- To make matters worse, as your team gets bigger, you accumulate more costs (gear, training, downtime, holiday pay, etc). This MUST be built in. Otherwise it eats into your profit. And gets you into trouble real quick.
The key is to know the margins YOU need. Then price accordingly. When you know what YOUR margins SHOULD be, you will not settle for working for peanuts.
To price it right, your quote should reflect costs + margin.
Q: Dan, if I price higher, clients might think I’m ripping them off…
A: Firstly let's be really clear. Another 5% is not ripping anyone off.
If you believe in what you're doing, it’s all about showing the customer you're worth it. That the job is going to be done right. At a fair price for both of you.
Educate your clients on why you are the right choice
Differentiate yourself with a professional image (online and offline) and your high standards. Show client success stories and reviews. Have credibility by displaying your awards, endorsements and trades association membership. And a guarantee - because you do quality work and stand behind it.
You are a professional in your industry with specialist expertise. You are also a business owner. Clearly one of your objectives is to MAKE MONEY.
As a business coach I’ve seen behind the curtain of hundreds of honest companies. Let me tell you, the one thing these tradies are NOT doing is ripping people off. It's pretty much always the other way around. Far too many tradies are not getting paid what they are worth - a return for the long hours, high stress, and high risk involved in being selfemployed. That has to stop and a 5% pay rise for the boss will be a great start.
by Daniel Fitzpatrick
Business Coach at Next Level Tradie