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How do you know how much to charge?
How much should you charge?
It’s a very broad question, isn’t it?
No one seems to know how much to charge.
Imagine the situation: you present your quote to a customer or your price you give over the phone and they say, “That’s too much.” Or “Some other guy was much less.”
And how do you feel?
Not great, I don’t think. I don’t think you feel great. I think you probably don’t feel very confident.
- Are you more expensive than someone else because you’ve charged too much?
- Because you take too long?
- Have you made a mistake?
- Maybe you misunderstood something?
- Did you f%#k your quote up?
(I’ve made a list.)
- Are they lying to you to try and get you to put your price down?
- Has the other guy put in a ridiculously low price in order to win the deal for some odd little reason of his own?
- Does he have no cost and you have lots?
All these questions leave us lacking in confidence and unsure about ourselves. And that’s not fair, it’s difficult right? There are so many unknowns and there’s so many possible responses to why you’re more expensive.
I’m Jon obviously from Small Fish Business Coaching. I run the Tradies Toolbox Coaching Program and it’s for tradies who want to grow and scale their trades business. And part of that of course is being confident in your pricing. It’s being confident particularly in charging enough for you to grow your business profitably with enough margin. So that you can pay everybody, so that you can invest in a business coach for example, or marketing, or admin staff, or equipment and vehicles, and all that necessary stuff.
Now, in the Builders Talk group Facebook group that I’m part of, there are lots of people always asking questions about pricing, about how much to charge, how much they should be charging, and demonstrating, and showing this kind of lack of confidence that it’s easy to have.
The answers are always quite varied and we know quite apart from “Why don’t you know you idiot?” which is common. There are lots of different varieties of answers.
So here’s one from the other day, right?
“I’ve got 64 square meters of open veneered flooring today. I’ve never quoted it before. I’ve always worked for somebody else on a day rate. What’s the going rate per square meter for oak veneered flooring?”
And the answers vary from £10, it’s in England this guy, to £20 per square metre, up to £35. And loads of comments like, “Work out how long it will take you then charge a day rate times the number of days.” So he’s none the wiser really is he? Somewhere between £10 and £35 a square metre, or how long it’s going to take him.
I have another quick story from my own experience just to illustrate how difficult it is to know how much to charge something. And I’m going to go somewhere with it, okay? So bear with me.
I run Tools Down workshop. It’s a 2-day workshop here in Byron Bay. And I got one of the ones earlier this year. We talked about pricing quite a lot. If you want to come by the way, the next one is in November, it’s going to be great. November the 18th and 19th and you can book it on my website.
Now, one of the topics we talk about is pricing. And I have a couple of builders in the room. We’re talking about pricing and we said, “Look at how much to hang a door for example?”
And one guy said $45. And one guy, he was a professional estimator for builders in Brisbane and he did a lot of project home type work, and one guy was a high-end builder in Sydney, and he said $250.
Now that’s a big fucking difference, isn’t it for a door! And it’s not down to the Sydney guy charging a lot more per hour. He doesn’t charge a lot more per hour. He allowed a lot more time. And he allowed a lot more materials for this job of hanging a door.
So let’s think about it what kind of door is it?
It’s supply part of the deal.
- How much care is being taken?
- How beautiful does it have to look?
- What’s the door furniture like?
Because the door jam included. You have to match it up with an existing house or if it’s everything straight and perfect.
- Are you doing ten in a day?
- Or you do you have to just drive out there and just do the one?
- What’s the go?
Because they affect that price very much indeed, don’t they?
And I think, there’s one point, the major point I want to make which is it’s not simple and there’s not a definitive answer for something like how much per square meter of flooring? Or how much to hang a door?
So the first thing you need to understand when you’re pricing is exactly what you’re going to do.
And the first thing you need to say when somebody says, “Are you too expensive?” is say, “Well let’s compare exactly what we’re going to do and I’ll tell you exactly what I’m going to do.” Or “We’re going to do so you can compare that to this other super cheaper guy.”
Here’s a few thoughts first…
People don’t buy the cheapest trade. They’ll often justify spending a bit more if they think you’re worth it. How much they will justify extra, is different for everybody. People would rather hire the guy, or the team, or the company they trust. And will pay a bit extra for that.
- Do they trust you to turn up?
- Do they trust you to do a good job?
- Do they trust you not to cock it up?
- Do they trust you not to be assholes or difficult to work with?
All those things.
So you’ve got to do a few things in your sales process.
You’ve got to teach them, and show them, and prove to them why you’re trustworthy. You’ve got to tell them your price. And you’ve got to tell them exactly what that involves and what that includes.
Recommended Reading: Your Customers Want Certainty – Part 2: Price Certainty
Let’s go to back to knowing how much to charge.
You should be charging:
- Your costs – which is how much time
- How much stuff, your materials,
- Enough margin to cover all your overheads and give you a profit.
Now your overheads cover a lot and your margins need to cover your overheads.
Overheads include all your office expenses, your vehicle expenses, your insurances, your business coach, your marketing, the admin person, all that stuff.
And it needs to cover the downtime of your guys, right?
You can’t charge them out at 40 hours a week but also have to pay them 40 hours a week – that’s a cost. Your margin has to cover that. Got to cover the mistakes that are inevitable, that happened. It’s got to cover everyone’s holidays and sick days, etc, right?
My big point to you, make sure the margins you charge and the amount you charge for jobs is enough because there’s nothing more dispiriting than working and finding you’ve made no money.
So if you’re confident about knowing how much stuff you’ll need and how long it’s going to take your reasonably qualified and reasonably fast team, then you’re in a good place right?
You can charge how long it’s going to take, and your materials, and add on your fair margin that your experience tells you is enough.
If you’re not confident, you’ve got two choices.
- Go and ask somebody else how long it takes them and adjust for your speed and your team speed and skill level.
- Guess and take the risk that you lose money. Afterwards you’ll have some experience and you’ll know. So next time… you will have built some experience and you’ll know how much to charge for whatever it was.
Let’s get back to our door.
If you want to know how much you should be charging to hang a door, I think the first thing you need to do is ask questions.
- What sort of door?
- Do I need to supply the door?
- Do I need to supply the hinges? Etc.
Get some clarity around the job and jobs that you’re being asked to quote for.
When you provide your price, give the customer some clarity about what’s involved and what’s included so that when the other guy comes back and says, “I’m much cheaper than them”, you’ve got some questions to ask and he’s got some questions to ask. So you can compare those apples to those other apples.
Add your travel time. You should probably be able to figure out how long it’s going to take you and know how much stuff you’re going to have to buy. Add your travel time in, name your price.
Now you can say with confidence, “So I’m pretty confident that I know that my price is reasonable” now, because you’ve put those boundaries and that clarity around everything now.
- Your price is reasonable.
- Your hourly rate is reasonable.
- Your margin is reasonable.
- That you know you’re paying for the materials so that price is reasonable.
- You’re far less concerned that you’ve made a mistake now.
- And your customer can compare your price and the other guy’s price with some knowledge about what yours involves.
So you’re going to feel a lot better.
When they say “that’s expensive”, which of course they’re still going to do, you can talk about why your price is what it is and let that customer choose whether he wants your price and what that includes, or someone else’s price and what that includes if indeed they were clear. And you can remind them that you’re the trusted guy because you’ve told them and explained to them why you’re trustworthy. You can remind them that everything’s covered and be clear that everything’s covered and he’s got no unknowns because you’ve explained what’s covered.
So one final point, how much should you charge?
And this is my favorite answer. You should probably be charging a bit more.
So have a little think about that.
Learn how to Increase Your Margins in 5 Easy Steps!
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See you later.