Do you constantly struggle with figuring out profit margins, navigating inflationary changes in material costs, and charging the right price for the right jobs?
Contractors in the trades face pricing challenges every day, and they just want a simple solution that eliminates all the guesswork and sets accurate pricing based on real-time data.
Say hello to ServiceTitan’s new Pricing Builder tool, designed to help contractors automate updates and changes to their pricebooks and work more efficiently with capability to set dynamic pricing for residential flat-rate businesses or client-specific pricing for commercial businesses.
“This is really cool,” says Chris Hunter, founder of Hunter Super Techs and co-founder of the Go Time Success Group. “In fact, the Blue Collar Nerd calls this a ‘game-changer.’”
In a recent webinar, ServiceTitan Principal Product Manager Eyal Binshtock and Hunter, now a Principal Industry Advisor for ServiceTitan, discuss the pricing challenges facing today’s contractors, best practices for pricing your services to protect profitability, and how Pricing Builder helps contractors maintain their pricebook, protect margins, and increase profits.
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Overcoming pricing challenges to grow your business
Hunter remembers a time, not that long ago, when pricebook updates for his HVAC business only happened once a year, usually in response to distributor updates on pricing for equipment and materials at the beginning of the year.
“We would make a change on what we wanted to charge, and even print out pricebooks. It was simple,” Hunter says. “We probably never even thought about it again throughout the year. If we did, we would just update a page and staple it onto our pricebook, and away we went.”
Then, ServiceTitan HVAC business software came along, offering a digital pricebook as one of its core features. Even so, the manual process to update the digital pricebook took time, but Hunter says he could get away with adjusting pricing only once or twice a year, and his business still did okay.
“That’s not doable anymore,” Hunter says. “If you only update your pricing once a year, maybe twice a year, you're going to see your margins start whittling away. You'll get to the end of the year, and you'll be like, ‘Oh my gosh, what happened? I thought we were going to make 20% net. What happened?’
“We've got inflation; we've got everything going up. So, this is almost like a full-time job just trying to keep this pricebook active,” he adds.
And beyond setting prices for normal labor and materials, what happens when you need an additional pricebook for pricing after-hours jobs, for different service divisions, or for commercial clients with multiple locations?
“It’s really difficult trying to maintain all of these different pricebooks,” Hunter says. “What we're seeing is it's taking customers five to 10 hours on average a month to maintain their pricebook. And maintaining it is one thing. Setting it up, that's a whole different animal. We spend maybe hundreds of hours trying to get this thing set up in the first place.”
As many contractors struggle to remain competitive in an uncertain economy, ServiceTitan wants to help make the process of pricing their services a little easier through automation.
“You've all probably felt the pain of falling a little bit behind the ball on updating pricing,” Binshtock says. “Some of those price increase notices from your vendors or manufacturers have been pretty scary over the past couple years. Your overhead, your cost of labor, everything's been changing quite a bit.”
But rather than wringing your hands and falling behind, you can stay on top of rapidly changing price hikes with the Pricing Builder tool.
“The idea is, one, let's build a tool that if you're new to ServiceTitan, you're getting your pricebook set up. It's a matter of minutes to get your pricing rules set up and price your items automatically,” Binshtock says. “If you've got an existing pricebook, it's still quick and easy. Equally, if not more importantly, when you're maintaining or updating pricing, it should be a matter of minutes to make those changes.”
Best practices for pricing your services to protect profitability
Before getting into the specifics of how the Pricing Builder tool works, Hunter says it’s critical for contractors to first get their billable rates right.
“If companies don't have the billable rate set right, the more work you do, guess what? It just causes you to lose even more money,” Hunter explains. “So many contractors don't have their billable rate set up right because they don't know how to.”
To get started, Hunter suggests utilizing ServiceTitan’s labor rate calculator, but be sure to pay close attention to the billable efficiency ratio.
The billable efficiency ratio is calculated based on how many hours your technicians bill out on average per day. While the benchmark used to be about a 50% billable efficiency ratio, Hunter says some contractors mistakenly think they’re ranking at about 70% to 80%.
“What we're really seeing is, it's less than that,” he cautions. “It's pretty common even to see a 30% billable efficiency ratio, which isn't great, but it makes a huge difference on your hourly rate. If you're not sure what yours is, be conservative on this. You can always adjust.”
To set your billable rate, you first need to know what your overhead costs are, Hunter says.
“A lot of people can pull their overhead from their financials, but here's the problem with it: They set it for last year's overhead,” Hunter says. “We're looking forward. This year, we want to do some awesome things. We want to be able to attract the best talent. We want to be able to provide better benefits for our team. We want to expand that training room or get a bigger office.
“All these things go into your overhead,” he explains. “So figure that in when you're trying to set your new billable rate, instead of using last year's overhead number.”
Also, try to avoid using one lump sum as your overhead number, which many companies tend to do when they’re just starting to grow and haven’t yet tried to departmentalize their divisions.
“That makes it really tough if you're trying to get really specific on your different labor rates for service, maintenance, or installs, and it can throw it off,” Hunter explains.
For example, if you're trying to set your service billable rate and you think, ‘70% of my jobs are installation and 30% are for service, so I'm going to take 30% of my overhead and apply it to service, and set that rate.’
“What's going to happen is you're going to set a very low service hourly rate, and your install rate is going to be artificially inflated,” Hunter says.
What really drives your overhead? It’s labor, Hunter says, and your service department will almost always require much more overhead than a typical installation department.
“When you're working on setting this labor rate, don't just take one lump sum and try to do a revenue split on it. If you can, try to departmentalize. It really helps you get a much more accurate rate,” Hunter advises.
Finally, determine what a good profit margin looks like for your company. Maybe it’s 15% net gain, or 20%, or even 35%.
“Here's the truth: Most contractors make less than 6% on the bottom line, which is sad. You put a lot into it. You deserve to have much better. You deserve to at least have a 20% net or more,” Hunter says. “Now, we need a tool to help us start to protect these margins. That way, when material prices change or our labor rate changes, we don't just see it when we get our financials at the end of the year and realize we didn't make what we thought we were going to. We need a tool that'll help us do that. That's where Pricing Builder comes in.”
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How Pricing Builder works to maintain pricebooks and protect margins
Recognizing how critical pricing is for the trades, but also understanding how difficult it can be to stay on top of pricing changes and manually update pricebooks each month, Binshtock says ServiceTitan knew it needed a better solution.
“I think the way a lot of you have been doing it in ServiceTitan until now, is a very manual process,” Binshtock says. “If you want to change your billable rate or change your markup, there's a whole lot of work to go in and reprice everything. You're probably exporting, doing it in Excel, potentially going line by line. Historically, that's been hours, tens of hours of work.”
Pricing Builder changes all of that by introducing automation and increased efficiency, and it allows you to set dynamic pricing for your residential services or client-specific pricing for your commercial services. Pricing Builder, which can be found in your dashboard under Pricebook, is part of the core ServiceTitan platform and is available to all ServiceTitan users.
To get your account ready for dynamic pricing and all the automation that comes with it, the first step is to:
Link materials and equipment to your services
Add sold hours to your services
“If you're coming up with a new billable rate, you'll go into the tool, update your billable rate, click save, and then all the pricing, all those services that are looking at that specific rule with that specific billable rate, are going to update automatically in real time,” Binshtock says.
“If you need to update your material or equipment costs, go in and update those from whatever you're getting from your vendors, suppliers, or manufacturers. You'll have already set your markup, so the costs will automatically adjust to your preferred markup, and update,” he adds. “If you have those materials or equipment linked to your services, it'll update the markup and reprice that service.”
Binshtock says ServiceTitan wanted the Pricing Builder to be self-discoverable, intuitive, and easy to understand. After all, we’re talking about something as complex as pricing across your entire Pricebook, and applying different pricing for different categories. “We wanted to try and make this a walk-through and for the software to hold your hand through the process. Make it easy for anyone to get in here and figure it out,” Binshtock says.
When creating a new rule for dynamic pricing, you first select a drop-down menu to choose the category. For example, all HVAC services or all plumbing services, or drill down further into HVAC service subcategories and set up a pricing rule specific to boilers.
Then, the tool asks for your billable rate, which can be added as a flat rate or progressive billable rate (charge a certain amount for the first hour, then more or less for additional hours).
Next, you select options for material and equipment markups, with four options for calculating them based on: 1) gross margin; 2) percent markup; 3) dollar markup, and 4) multiplier. And if you want to add a surcharge for any or all services, you can do that based on a dollar amount or percentage.
“We've also expanded our capabilities with modifiers. For instance, what discount do you want to offer, if the item is an add-on?” Binshtock says. “We're offering dollar amounts, percentage, and times.
“If you just want to offer a flat-rate $50 discount for an add-on, you could do that. If it's percentage-based, you could give them a 20% discount for the add-on. Or you could discount by time. Say anything between zero and one hour, we can reduce by 0.25. If it's between one hour and 10 hours, discount by one hour,” he adds.
For after-hours jobs, contractors can now set up a pricing rule for any jobs that occur within a certain timeframe, such as 7 p.m. to 6 a.m. If the scheduled start time occurs within those hours, an after-hours charge automatically applies. Binshtock says the functionality to add rules for weekend and holiday hours will be coming soon to Pricing Builder.
The tool also allows technicians to choose pricing levels based on job difficulty, but only when authorized to do so. Owners retain control over how many pricing levels technicians can see, and can set them based on a dollar amount or percentage.
“If you want to give your technicians a little bit of flexibility in price adjustment based on the scenario on the ground, this allows you to do that,” Binshtock says. “This is completely optional.”
Future enhancements of the Pricing Builder include expanding after-hours capabilities, applying pricing rules by business unit, building out tax rules, and adding flexibility to the rules for discounts and fees. “There’s lots of growth plans for Pricing Builder. It’s very much going to be an active development product area for the foreseeable future,” Binshtock says.
Once you get your dynamic pricing set up in Pricing Builder, you can clearly see how you arrived at the price you need to charge.
“You can validate exactly how you got to that price on every single skew, every single item in the Pricebook,” Binshtock says.
Again, it’s important to link your materials and equipment to services, so you always charge the right prices—and follow best practices for maintaining your ServiceTitan Pricebook.
“The way the Pricebook is built in ServiceTitan is that it's really considered the heart of the software,” Binshtock says. “A lot of things that happen in your business tie back to the Pricebook at some level. What you're selling, how you're selling it, and what the homeowner sees, starts with the Pricebook.
“What you're charging, the margins, and the success of your business relies pretty heavily on a well-built Pricebook,” he adds. “We really sit at the heart of many critical aspects of your business.”
Instead of ignoring your Pricebook or only doing the minimum work to get by, invest some time into making it work better for you. And use Pricing Builder to automate and speed up the process.
“The investment you build in your Pricebook pays off in spades,” Binshtock says. “What we see is Pricebooks that are fully fleshed out—you've got really solid marketing, you've got materials and equipment linked, you've got recommendations and upgrades linked up—on average, we see a 13% increase in revenue compared to those that are at the bare minimum adoption. That's a big deal.”
ServiceTitan is a comprehensive software solution built specifically to help service companies streamline their operations, boost revenue, and substantially elevate the trajectory of their business. Our comprehensive, cloud-based platform is used by thousands of electrical, HVAC, plumbing, garage door, and chimney sweep shops across the country—and has increased their revenue by an average of 25% in just their first year with us.