The cost of doing business is continually rising. Your materials are increasing in price, as are overheads such as insurance, power, fuel and salaries.
Let me ask you; how long has it been since you last raised your prices?
When asking this of first-time clients, most often, the answer comes back as “over 12 months ago”, “18 months ago”, or “2 years ago”. When clients have not put their prices up for over 12 months I ask; why not?
The answers are usually few and far between and rarely justified. Let us explore why as a business you need to put your prices up regularly…
Your expertise is growing. As you increase the number of years you are in business, and also the quality of your team, your expertise needs to be rewarded. Customers are paying for your experience, not your time. Therefore, if you charge a flat rate on the majority of jobs, it is up to you to deliver in the shortest amount of time.
- You are probably already undercharging for the labour component of your work. Do you know the true cost of employing your team? When you take into account the hourly rate that you pay someone, superannuation, an allowance for annual leave, sick leave, public holidays, RDOs, non-billable travel, and meeting time, you find that the hard cost to employ someone can be anywhere from 1.3 to 1.5 x their nominal paid hourly rate. You then need to add an overheard component to every hour that the employee is on site. This is often referred to as an overhead recovery cost, and would vary from business to business. You’ll then add your margin on that hour to the total of all of this. How clear are you on what this is in your business?
- It’s better to be at the top of the price range of your industry than at the bottom. Some clients would automatically want to use your services because you are more expensive than the rest. We work with our clients to ensure that they are in the top 10% of the pricing bracket of their industry… and deliver the value to ensure that the clients’ expectations are met. I guarantee that you have paid more for something than you originally thought you were going to because you saw the value.
- Your standards need to rise. Your business results are often a reflection of the standards you set for yourself. By valuing yourself as a professional of your trade, and an expert in your field, you deserve to be paid more for what you do. You deliver quality every time and therefore as you continue to improve the quality of what you deliver, in time, your remuneration should rise.
- You can do less work for the same profit. When you know your numbers, you will recognise that you can get by doing less work to meet the same profit margins when you increase your price. An example is, if your gross profit margin is 50% and you increase your prices by 10% you can afford to do 25% less work during the year and make the same gross profit. Doesn’t that sound exciting?
Raising your prices is quite simple, however you would have to deal with the emotional side that may come up, such as; “Will I still win the work?” “What happens if I don’t?” “What will other people say?” “Am I really worth it?” This will be addressed in a future article, so stay tuned.
If you would like to know how to increase your prices, deliver value, and become a true professional of your trade, contact PROTRADE United.
Written by Jon Mailer
CEO of PROTRADE United