Guides / Money
Raising your prices
Most owner-operators know they are underpriced and raise prices by five percent, which does not fix anything and costs the nerve required to try again. The useful version is working out the right number first, then moving to it deliberately.
First, find out whether you actually are underpriced
There are two honest tests. One: your close rate. If you are winning most of what you quote, your price is below what the market will bear — a very high close rate is a pricing symptom, not a sales achievement.
Two: your net margin against the overhead and profit you actually need. Work out the hourly rate your year requires with the hourly rate calculator and compare it to what your jobs are producing per field hour. If the second is below the first, no amount of selling fixes it.
Do both before changing anything, because they fail differently: the first says the market would pay more, the second says you cannot survive without it.
Work out the number, then move to it
Small increases get absorbed by the next material price rise and the next slow month, and then you are back where you started having used up the willingness to try. If the arithmetic says you need to be fifteen percent higher, go to fifteen percent.
Raise it on new quotes only. Honoring quotes already out, and jobs already agreed, costs little and protects your reputation in a market where that is most of your lead generation.
Expect the close rate to fall, and let it
This is the part that stops people. Quote higher and you will lose jobs you would previously have won, and that is the mechanism working rather than failing.
The arithmetic: at $4,000 average and a 50 percent close rate, twenty estimates produce ten jobs and $40,000. At $4,600 and a 40 percent close rate, the same twenty estimates produce eight jobs and $36,800 — slightly less revenue for considerably less work, and the margin on each job is higher. Raise to $4,800 at 40 percent and you are at $38,400 on eight jobs instead of ten.
Revenue is the wrong thing to watch here. Watch profit, and watch how many field hours it took.
What to say
Nothing, mostly. A new customer has no idea what you charged last year, and the overwhelming majority of price rises need no explanation because nobody is comparing.
For repeat customers, a short, unapologetic sentence is enough: costs have risen and this is the current price. Do not over-explain, do not apologize, and do not offer the old price to the first person who pushes — that teaches everyone that the price is negotiable.
Raise the floor as well as the price
A minimum charge is often worth more than a percentage increase. Small jobs carry the same driving, estimating, setup and invoicing as large ones, and they are usually the jobs losing money.
Setting a minimum you will accept removes the least profitable work from your schedule and frees the hours for the jobs the increase just made better.
Questions
How do I know if I am charging too little?
Two tests: a very high close rate means the market would pay more, and revenue per field hour below the rate your overhead and profit require means you cannot survive at the current price. They fail differently, so run both.
How much should I raise prices by?
By the amount the arithmetic says, in one move. Small increases get absorbed by the next material price rise and use up the nerve needed to try again.
Will I lose customers if I raise prices?
You will lose some jobs, and that is the mechanism working. Fewer jobs at a higher margin can mean more profit on considerably fewer field hours — watch profit and hours, not revenue.
Where this stops being arithmetic
Aerys prices a job from your own catalog and production rates, sends it with an accept link and the invoice already attached, and then compares what the job actually cost against what you quoted — by task, while the job is still running.