Correctly pricing your products and services is one of the most critical decisions you can make for your business, and one of the most difficult. Pricing too high means losing business to the competition, and pricing too low hurts your margins.
If you struggle to come up with a pricing strategy that makes sense, you’re not alone. Many contractors find it hard to get the insights they need to make smart pricing decisions. In addition, prices can vary from region to region, so you’d need to know what pricing looks like in your own region to see where you sit amongst your competitors.
Pricing doesn’t have to be intimidating or confusing to figure out. We’ve put together a few handy tips below to help you research and determine the right pricing for your contracting business. Let’s dive in!
Choose the right pricing model.
Before you do anything, it’s crucial that you understand the two main pricing models and weigh their pros and cons before choosing the right one for your business. The two models often used by contractors are:
Flat Rate: A business charges one fixed rate for a service instead of charging by the hour and materials used
Time & Materials: A business determines cost based upon time spent performing the work, and for materials used in the job
Most successful shops use a flat rate structure, because the customer knows the cost upfront and pays a fixed flat rate for service, with time and materials already built in. This also makes it easier for your techs to present estimates seamlessly and quickly.
Know your costs and desired margins.
Another key to pricing like a pro is to know your desired profit margin. Over time, your margins can help identify areas of your business that need attention and tell you how your business is performing.
To calculate a realistic number, you’ll first need to determine your costs associated with completing a job. For most contractors, this entails labor, materials, and equipment. Once you have these costs, you can establish reasonable margins you’re comfortable with.
Research your local competitors.
Get a better sense of how your pricing should look by researching what your competitors charge for similar services and products. One way to easily do this is by using publicly available information, such as a competitor’s website.
If your competitors have social media or they run ads on channels such as TV or radio, those are worth checking out, too. Be sure to look for discounts, service guarantees, or other incentives they offer, so you can get an idea of the actual value.
Determine your pricing and validate with Price Insights.
Once you’ve reviewed pricing models, set your margins, and done a bit of competitive research, you’ll get a good idea of where your own product/service pricing should fit. But if you’re still a bit unsure, try using a tool like Price Insights for Pricebook Pro. It calculates the average price for each Pricebook Pro service and shows you how your price compares to the average selling price for that service in your region.
Now here’s the kicker—Price Insights also features a meter that reflects the level of confidence in our algorithm, so you can feel secure knowing you’ve made the wisest pricing decisions for your business.
Price Insights can be a huge confidence-booster for your contracting business and help you stay competitive, protect your margins, and drive revenue.
Want to learn more about how it works? Check out our Knowledge Base to get all the details!