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How To Charge More And Make Better Margins
Charge more and make better margins.
Nicole did. She made $30,000 more.
Last week, Nicole, one of my clients, put a post into our Facebook group ‘The Toolshed’ (a private Facebook group for our clients) sharing a WIN.
We posted it on our Facebook page to show that coaching works and that it made Nicole and her business an extra $30,000 of profit in one go (which is always nice to show off), so thanks Nicole for sharing.
I want to explore it because there are some lessons for all of you.
Lesson 1 – Underpricing
First, here is what happened.
We spent some time in one of our coaching sessions looking at the numbers for the business, partly, because a big project was coming up, and they were putting together a quote proposal, and they wanted to figure out how to price it.
They were very aware that in the past they’ve underpriced jobs and run rather lean and had been left without making much money after doing all that work.
And that’s lesson one. It’s really easy to do that. It’s really easy to second-guess yourself, price a bit low, end up working very hard and not making much.
Recommended Reading: Tradie Mistake Number 4: Not Charging Enough
Lots of trades businesses do this — work really hard, run around, people are being paid and you as the business owner aren’t really making much more than wages. And it could be a risky position.
If there are a few mistakes, then you can end up making not much at all or losing money.
Lesson 2 – Overquoting
Nicole’s dad is not wanting to underquote, but he’s also scared of overquoting and not winning the job. And I imagine that’s a familiar feeling for everybody too. Everyone wants to overquote and would be told, “You’re too expensive, you won’t get the job”.
So we looked at the numbers for the business as a whole, specifically, the costs. We wanted to understand what the labor costs really are. And we wanted to understand what the overheads are. And we look to how much this job (a 4 months job) has to make on top of labor and materials to cover 4 months worth of overheads. It was quite a lot.
That’s lesson number 2 – it’s easy to ignore the overheads of the business, the fixed costs.
We went through the quote and we applied what their actual labor costs were to each portion in the construction. We had enough margin to cover those overheads and the materials we added. We had enough margin to cover the overheads, some contingency, some project management work and we added some profit and it was about $180,000.
Dad didn’t feel like he could charge more than $150,000. He had a preconceived idea what he could charge, which is not based on the actual costs of building the thing. It was based on a similar build he did several years ago that was $150,000. And he felt like he couldn’t be much more than that. He felt like a precedent had been set.
Dad’s no idiot here, but he feels this pressure even before he goes to his customer with the fair price that we worked out based on facts and real knowledge. Before he even goes out and sees their response he’s feeling that pressure. He’s putting that pressure on himself.
He’s already second-guessing the estimates in our process to try and get them down to this magic but imaginary number.
You know what happened?
Understanding the numbers, the true costs, and getting really clear and really confident that they were real helped him be brave and it helped him go confidently to his customer and say, “It’s $180,000.” Feeling like that was fair, and reasonable, and right, and truly reflective of the costs and a fair profit for the company.
The customer agreed without batting an eyelid.
- Lesson 1 was they’re feeling the pressure to be cheaper and the fear that if you’re not cheap enough, you lose out is a very real thing. We all feel it.
- Lesson 2 is that knowledge helps. If you truly know what the costs are and that your price is fair, it’s a lot easier to resist that fear and ask for more money.
- Lesson 3 is that your customers don’t just buy what’s cheapest, that’s not even close to how it is. They buy trust and confidence and relationships, and they buy this certainty that they’re going to get what they want. They just want to be sure that the price is going to be okay.
Most customers don’t want to buy the cheapest thing.
You might feel like that sometimes but actually that’s very rare.
These guys didn’t question this price. Either his customers had no idea or he was in the ballpark of what they were expecting, so they were sweet with them.
- Do your numbers
- Understand your costs
- Understand the prices in your market and where you sit
- Be confident
- Charge enough
If I’m your coach, I’ll help you do all those things. If you work with me, you will understand your numbers in your business. And I will try very hard to help you make sure you charge enough to run your business profitably.
Now, if you want to talk to me about that, you know what to do.
There are four ways you can engage with me:
1. Subscribe to these emails and get them once a week in your inbox so you never miss a video from me.
2. Join the Trades Business Toolshed Facebook Group where you can watch these videos, ask me questions or talk to your peers.
3. Attend my next Tools Down workshop.
4. Book yourself a 10-minute chat with me. We’ll talk about whether coaching is right for you now and if it is, we’ll go further into the process before you have to make your mind up.
See you later.