There is a version of a contracting business that is completely full, running flat out, the owner exhausted, techs working overtime, and at the end of the year there's almost no profit to show for it. I've seen it more times than I can count. The problem is never effort. The problem is always pricing.
You can stay busy at the wrong price. You can work yourself into bankruptcy. The goal is not full capacity. The goal is profitable capacity.
The Difference Between Revenue and Profit
Revenue is what customers pay you. Profit is what's left after you've paid everyone and everything else. A contractor doing $800,000 in revenue with a 5% net margin is making $40,000 for themselves. A contractor doing $500,000 in revenue with a 20% net margin is making $100,000. The second contractor works less, makes more, and has a healthier business.
If your pricing is built around what the market will accept rather than what you need to make a real profit, you're working for activity and not for outcome.
Build Price From Cost, Not From Competition
Start with your fully-loaded cost of delivering a job: labor (at the real cost, not just the hourly wage), materials at actual cost, a proportional share of overhead, and a target profit margin. That number is your floor. If the market won't support that floor, you have a cost problem or a positioning problem, not a pricing problem.
Checking what competitors charge is useful for calibration, not for setting your price. If competitors are underpriced, following them down is how you end up in a race to the bottom that nobody wins. If they're higher, that's useful information about whether you have room to raise.
Raise Your Prices and See What Happens
Most contractors who've never raised prices don't know where their real ceiling is. If you raise prices 10% and lose 5% of customers, you're probably making more money on less work. If you raise 10% and lose 30% of customers, you've learned something about your market. Either way, you have data.
The contractors who find out they were 20% below market and could have been making significantly more for the same work are always frustrated with themselves for waiting. You might as well find out now.
Put this into practice with WerkOps
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Written by
Dina Good
Founder, WerkOps
Dina grew up in the trades. Her father was a contractor, then a building inspector, and the job site was her classroom long before any formal one was. She went on to own her own contracting company, which is where she first felt the pain of running a skilled trade business on bad software and worse spreadsheets. A love of data pulled her into programming, and the two worlds eventually collided into WerkOps - software built by someone who has actually been on the truck.