Articles for service business owners

 

How to price your building work competitively and still earn money

20th August 2014

Pricing-competitively

Pricing your building work can feel a little like Goldilocks… price too high, no work. Price too low, no money. Pricing just right… tasty!

Getting pricing right is a difficult balancing act.
Here’s a guide to more easily work out what you should be charging for your next job.

How much detail should you include with your price?

It’s entirely your choice how much work detail you provide with your price. However, including full detail on the work you plan to provide can ensure:

It might take a bit of extra time (unless you’re using software for estimating), but providing more detail can give you an edge.

General things to consider when providing a price

The Department for Business Innovation & Skills have put together a best practice guide (you can read the PDF here).

It’s a lengthy document, but if you’re pricing for building work, here are a couple of key takeaways:

What goes into a price?

Here’s how most tradespeople arrive at a cost for building, construction, plumbing or electrical work:

Labour + materials + profit job price

So, how do you make this formula work for you?

Calculating your labour cost using an hourly rate

Knowing your labour charge is simply placing a price on your time.

That’s where hourly rates become a valuable tool.

Having an idea of your hourly rate will make working out your labour a very easy task… but how do you know what to charge per hour?

Here’s an easy way to work out how much you should be charging per hour:

  1. Write down the annual salary you want/need to earn. That’s your desired salary.
  2. Minus the number of holiday weeks you want each year from 52. That’s the number of weeks you’ll work each year.
  3. Divide your desired salary by the number of weeks you can work. That’s your weekly earnings target.
  4. How many hours do you want to work each week? Divide your weekly earnings target by the number of hours you want to work.
  5. That’s your hourly rate. Write it down and keep it in mind… Always aim for it!

When pricing new work, multiply your hourly rate by the estimated number of hours you estimate it’ll take to complete the work.

Remember to include travelling time when adding up your hours for a job.

Working out (and marking up) your material costs

The next part of our pricing formula comes from the materials you’ll need to buy to complete the work.

Hint: keep an accurate note of the materials you include in your job price. It’ll be your material shopping list if you win the work, and you can also compare it to the actual materials you then use to learn from and improve your future prices.

Create a list of the materials you’ll need to complete the work and include the total cost into your quote.

Don’t be afraid to markup the materials – after all, you should factor in the ordering, selecting and handling of those materials in your pricing.

Of course, if you can save time and money by getting materials delivered to site, then by all means don’t worry about marking up materials costs.

If you’re happy with your customer purchasing materials, then make sure you include a hourly charge for drawing up the list for them to buy.

Don’t forget that profit is sanity

There’s a great business saying that goes: turnover is vanity, profit is sanity, cash is reality.

You’re in business to make money, so profit has to feature when working out your building work price.

Here are a few costs you should consider when deciding how much ‘profit’ to make on a job:

All of these things costs you money. The work you complete should be enough to cover these costs.

Here’s a simple way to make sure your business stays profitable through pricing:

Total all of your monthly running costs and expenses, divide them by the number of days you work each month, and you get a daily cost of running your business.

At the very least, the ‘profit’ you make on a job should cover your basic daily business expenses.

Add the profit you need to make to your job pricing.

Never, ever, get into a price war

Avoid competing on price with your competitors at all costs… A race to be the cheapest is no way to run a business!

Your customers don’t solely concentrate on price when choosing a tradesperson. There are other factors involved…

Here’s some advice from The Federation of Master Builders:

Q: Should I always go with the lowest quote?

A: We don’t recommend that you always go for the lowest quote. You need to find a builder that you’re comfortable with, and also in terms of the value that they’re going to do.

Make sure you focus on your unique value. This will help you avoid getting into a price war.

Your unique value should be the quality and professionalism of your work.

Write down the 2 or 3 things that make you a business your customers will want to use (for example: timekeeping, professionalism, expertise, guarantees). Make sure you communicate your value to your customer.

If your perceived value is greater than the perceived costs, your customers will be motivated to act. Create value. Click to tweet this

How do you know how others are charging? Here’s a handy list of average costs for basic building work for homeowners.

Don’t undersell yourself – your customers would much rather pay for honest, reliable expertise.

You’re working to earn money. So, make sure you have a pricing system for your building work that makes sure it’s worth your while.

 


About the author

Adam Austin is the CEO & Co-founder of YourTradeBase.com - The easy way for service businesses to save hours on admin and paperwork.


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