How did you establish your pricing? Generally it is a little less than what your last employer charged. Or, you called around town and a few would give prices on the phone for work site unseen. I’m really going to trust those prices – plumbing by phone – maybe there is a new industry there.
So you are charging less. Since you are a little cheaper, you will get more business, right? That theory is like winking at a girl in the dark. No one knows about it but you!
Then there is the fact that your customers are the most astute people on earth and know exactly what your service is worth and what you should be charging. They always say you are too high! Maybe you just are not delivering the proper service to even charge what you are charging. These pricing strategies just tell me you are scared to charge what you are worth. Plus the fact you don’t know what to charge. It is like a big mystery.
Pricing for your company is based on your overhead. What does it actually cost to run your business? Rent, utilities, phone, software, accounting, business license, general liability insurance, truck insurance, and the list goes on and on. Once you know those figures, you can calculate what you need to be charging. I don’t really care what you competition is doing. Most of them are just renting a job for themselves and are building nothing for the future.
So, you start with what you know, then work backwards. Overhead for a residential plumbing company should be about 30% of your sales. Then if you want people to know your company actually exists you have to market your business – internet, mailers, advertisements, and sponsorships. And you have to be aggressive at it. 10% of sales should be the numbers properly market your business to let the public know you are there. So if we are adding correctly, 40% of our sales are already spoken for.
Cost of Goods Sold are the necessary expenses required to generate the sales. Labor, materials, subcontractors, rental equipment, permits, fuel and basic truck maintenance are all in Cost of Goods Sold. Subtract COGS expenses from sales to derive the Gross Margin. That target is 60%.
Now let’s summarize. Sales equal 100%, subtract COGS of 40% leaves 60% Gross Margin. Then subtract 30% overhead and 10% marketing leaves 20% profit. You just have to work the numbers backward to determine your selling price. An easy start is taking your labor and material cost and gross it up 60% and go from there. Many of you will be surprised. You have given away your work for years.
Do you need help getting your business to the next level? That is what I do all day every day. Contact me at ThePlumbersCoach.com.
The Plumbers Coach™. Detailed personalized business coaching and training for plumbing contractors. Like us on Facebook @ThePlumbersCoach, follow us on Twitter @T_PlumbersCoach and on LinkedIn @KeithGlass1. Get your day started right with The Daily Quote on our social media pages.
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