Howdy all,

I was reading the posts and getting to know this forum and thought I would put in my two cents on this one in particular:

We get a lot of customers with the same situation. The best advice for charging customers is giving them something more than price to compare. IF all you give is a price, there will ALWAYS be someone out there that can beat you. Perceived value is key. Let them know not only the price but why they should choose you! For example, I am sure the guy that charges $60.00 an hour doesn't have insurance to cover potential mishaps, doesn't answer calls with a live person, doesn't provide timely support because he has no one on payroll, etc., etc., etc.

You MUST give your customer more to go on than price. We are all willing to spend a little more if we get better service and value. So do your customer. Keep in mind however that there will always be customers that will complain about pricing no matter what, let those ones go, they will never be profitable anyway and you are in business to make money. I would rather make $800 with 8 customers at $100 a pop that $800 with 10 customers at $80 a pop.

Also, know your costs. It doesn't matter what Mrs. Smith thinks about your pricing if you are not paying the bills. Find out how much it costs you to run your business and then determine your prices. We see too many contractors quote jobs from the hip and wonder where the money went at the end of the year. Here is a little post we wrote a while back that may help you determine your true costs:


How can companies expect to make money if they do not know their true cost of doing business? Most companies we deal with were not assessing their labor or overhead rates properly. This made them to charge too much or more often, too little.

You would be surprised on the number of companies out there that do not know how to price theirs jobs properly. They make quick estimates from the top of their heads trying to take into consideration some overhead and labor costs. Or perhaps they have a budget and go by their fixed and variable overhead only.

But shouldn’t the true cost of labor be calculated, including your technicians “unproductive hours” such as drive time, running for parts, shop and lunch time? And shouldn’t the income that your technicians generate also be factored in so as not to be way overpriced? What about callback labor, vehicle maintenance, uniforms, etc.? Have you calculated all of the above to find out what you really need to charge? Do you know what your true breakeven point is?

One way of doing this is to calculate you’re fixed and variable overhead and add your cost of labor, including benefits. Divide it by your employee’s productive hours (a benchmark would be 50% of their paid hours if you are a service shop). The resulting number is what you need to charge per productive hour to breakeven.

As an example, let’s say your total fixed and variable overhead as well as your labor costs arrive at $500,000 per year. Don’t forget to factor in any callback labor (work done for free), consumable tools, in fact, every dime you spend operating your business. That accounts for our total yearly expenses.

Then, calculate your total productive hours. For example, you have 3 full time technicians getting paid 40 hours per week. Using our 50% ratio, that would leave them with 20 productive hours each week or 60 in total. Multiply that by 50 weeks (2 weeks vacation) and you arrive at 3000 productive hours per year.

Now take your costs of $500,000 per year and divide it by your 3000 productive hours. You arrive at a charge of $166.66 per productive hour. Now before you have a heart attack, keep in mind that we will use this number to calculate only true job time since driving, chatting with the customer, truck inventory replenishment costs have been accounted for in the unproductive time (20 hours per week or 50% of their paid hours).

Now that you have this number, use it to calculate your true cost of any job. Example:

A 4 hour project would cost for labor and overhead 4 X $166.66 = $664.64

Ten add your materials and/or subcontractor costs, let’s say $500.00

Your true cost for this job is $1,166.64. Knowing this is the first step, since you now know that charging any less would be a loss for the company. To add profit, simply use this formula:

For 10% profit, divide the number by 0.9.
For 20%, divide by 0.8
For 25%, divide by 0.75, and so on.

So to make 20% profit on this job, it would be $1,166.64 divided by 0.80 or $1,458.30

As long as your expenses are correct and you’re productive or job hours are conservative and achievable, this method will not steer you wrong. You will be making 20% profit on that job or $291.66

I hope this little tidbit helps a few of you reevaluate your pricing. If you have any questions on this, do not hesitate to email me.

Marc Blanchard

[This message has been edited by Webmaster (edited 04-20-2005).]