Tradie Business 101: How to Increase Your Pricing

Introduction: Addressing a Common Challenge

If you’re a small-to-medium business owner in the trades or service industries, you’ve probably faced the common challenge of pricing your work. How do you set your prices to ensure you make a good profit while remaining competitive? It’s a delicate balance, and it’s easy to feel overwhelmed. Many of my clients have struggled with this very issue, and it’s important to know that you’re not alone. I’m here to guide you through the process with practical, actionable advice.

About the Author: With a Masters in Entrepreneurship and Innovation, a Bachelor of Engineering (Mechanical Engineering), and a Graduate Diploma of Business Management, I specialise in big-picture strategies for mature-stage businesses ($5M+). My focus is on delivering bankable growth to position a business for exit by sale or management. As a business coach for tradies and business coach for plumbers, I coach directors, general managers, and executive teams on long-range strategies and leading high-performance teams. People describe me as a clear thinker, adventurous, determined, and detailed.

Understanding Your Costs

The first step in pricing your work effectively is understanding your costs. This includes both direct and indirect costs. Direct costs are those that can be directly attributed to a specific job, such as materials and labour. Indirect costs, on the other hand, are overhead expenses that are not directly tied to a particular project but are necessary for running your business, like rent, utilities, and insurance.

List All Your Costs

I recommend that all of my clients list their costs, as understanding your business costs is crucial for effective pricing. This includes direct costs, such as materials, labour, and equipment directly used in your work, as well as indirect costs like overhead expenses (rent, utilities, and insurance), administrative costs, marketing expenses, transportation, and any miscellaneous costs. By listing all these expenses, you can see a comprehensive picture of what it takes to run your business, which is essential for setting prices that cover all your expenses and allow for profitability.

Calculate Your Break-Even Point

Calculating your break-even point involves identifying your total fixed costs (like rent and salaries) and variable costs per unit (such as materials and labour for each job), then using these to determine how many units or jobs you need to sell at a given price to cover all your costs. This figure is crucial as it forms the baseline for your pricing strategy, ensuring that your prices are set high enough to cover your expenses and prevent losses. Understanding this point allows you to set a foundation for a profitable business.

Adding Your Desired Profit Margin

Once you know your costs, the next step is to add your desired profit margin. This is the amount of profit you want to make on top of covering your costs. The profit margin can vary depending on your industry, competition, and the value you provide to your customers. As a business coach for tradies and business coach for plumbers, I can guide you through determining this crucial aspect of your pricing strategy.

Determine a Reasonable Profit Margin

When determining a reasonable profit margin for your business, it’s essential to start by looking at industry standards. This research helps you understand the typical profit margins within your specific trade or service industry, which often range from 15% to 30%. However, don’t just stop at industry averages; consider your unique value proposition as well. What sets your business apart from competitors? Whether it’s superior quality, exceptional customer service, or specialised skills, these factors can justify a higher profit margin. Balancing industry norms with your unique offerings ensures that your pricing is competitive yet profitable, allowing your business to thrive.

Test Different Margins

Experimenting with different profit margins can provide valuable insights into how they impact your pricing and overall profitability. Start by setting a few different margins and applying them to your pricing model. This process helps you see how changes in margin affect your bottom line and customer responses. It’s crucial to strike a balance that ensures your business remains profitable without pricing yourself out of the market. Regularly reviewing and adjusting your profit margins based on these experiments will help you find the optimal price point that attracts customers while maintaining healthy profit levels, ultimately supporting the long-term success of your business.

Competitive Analysis

Understanding your competition is crucial in setting your prices effectively. As a business coach for tradies and business coach for plumbers, I emphasise the importance of knowing what others in your industry are charging to ensure your prices are competitive yet profitable.

Research Your Competitors

Understanding what your competitors are charging for similar services is a critical step in setting your own prices. This research provides valuable insights into the market rate, helping you avoid pricing yourself too high or too low. You can gather this information from various sources, such as competitors’ websites, customer reviews, and even by directly inquiring from potential clients or industry peers. Paying attention to the details of what others charge and why they charge those amounts can give you a clearer picture of the value being offered in your industry. This understanding allows you to position your pricing in a way that is competitive yet reflective of the unique value you bring to the table.

Position Your Pricing Accordingly

Once you have a good grasp of your competitors’ pricing, the next step is to position your own prices based on the value you offer. If your services are of higher quality or come with additional benefits, such as exceptional customer service or faster turnaround times, you can justify charging a premium.

On the other hand, if you’re targeting budget-conscious customers, setting your prices slightly lower than your competitors might attract more business. The key is to find a balance where your pricing reflects the value and quality of your services while remaining attractive to your target market. This strategic positioning helps you stand out and ensures that your pricing aligns with your business goals and market demands.

Value-Based Pricing

One of the most effective ways to price your services is through value-based pricing. As a business coach for tradies and business coach for plumbers, I emphasise that this method focuses on the value you provide to your customers rather than just your costs.

This article from Nav offers a comprehensive overview of various pricing strategies tailored for service and trade businesses and Field Camp’s ultimate guide covers thirteen different pricing strategies for service businesses, helping you choose the best strategy for your business.

Identify Your Unique Value Proposition

Understanding what sets your services apart is crucial for establishing a strong market position. Begin by examining what makes your offerings unique compared to your competitors. This could be the superior quality of your work, exceptional customer service, or a specialised skill set that others do not provide. For instance, if you are a plumber who offers 24/7 emergency services, this immediacy and availability can be a significant selling point. Or, if your craftsmanship in custom plumbing work stands out because of its attention to detail and durability, that is a unique value. By pinpointing these unique elements, you can highlight how your services provide more value to customers, which is essential for justifying your pricing.

Communicate This Value to Your Customers

Effectively communicating your unique value to your customers is key to building trust and justifying your prices. Make sure that your customers understand what they are getting for the price they pay. This could involve clearly outlining the benefits and quality of your services in your marketing materials, providing detailed explanations during consultations, and showcasing testimonials from satisfied clients. For example, if you charge a premium due to the high-quality materials you use, make sure your customers know how these materials will benefit them in the long run. By articulating the value you offer, you can build customer loyalty and create a perception of worth that goes beyond just the cost, making customers more willing to pay higher prices for the superior service they receive.

Implementing Your Pricing Strategy

Now that you have a clear understanding of how to price your work, it’s time to implement your strategy. As a business coach for tradies and business coach for plumbers, I offer these additional tips to ensure your success:

Regularly Review Your Pricing

It’s crucial to remember that costs and market conditions are always in flux, meaning your pricing strategy should never be static. Regularly reviewing and adjusting your prices allows you to stay competitive and profitable in an ever-changing market. This involves periodically analysing your costs, evaluating the economic environment, and keeping an eye on what your competitors are charging. By staying proactive, you can make informed adjustments that reflect your current financial needs and market demands, ensuring your pricing remains fair and effective.

Offer Tiered Pricing

Implementing tiered pricing can be an effective way to cater to a wide range of customer needs and budgets. By offering different pricing levels, you provide options that can attract a broader audience. For example, a basic service package at a lower price point can appeal to cost-conscious customers, while a premium package with added features can attract those willing to pay more for extra value. This strategy not only helps you maximise your market reach but also ensures that you can offer solutions that meet varying customer expectations and preferences, ultimately boosting your sales and customer satisfaction.

Communicate Effectively with Your Customers

Transparency in pricing is key to building trust with your customers. Clearly explaining how your prices are set and the value that customers are receiving helps them understand and appreciate the cost of your services. This includes providing detailed quotes, breaking down costs, and being upfront about any additional fees. Effective communication about pricing not only demonstrates honesty and integrity but also helps to mitigate any potential misunderstandings or dissatisfaction. By fostering open and clear communication, you can strengthen customer relationships and encourage loyalty, which is essential for long-term business success.

Practical Example: A Case Study

Let me share a relatable example from one of my coaching sessions as a business coach for plumbers. One of my clients, a small plumbing business, was struggling with pricing their services. They were often underpricing jobs and not making enough profit. We went through the steps above: understanding their costs, adding a reasonable profit margin, analysing their competition, and focusing on the value they provided.

By implementing this approach, they were able to adjust their prices, which resulted in an immediate improvement in their cash flow. They communicated the value of their high-quality workmanship and excellent customer service to their customers, which helped justify the price increase. This not only improved their profitability but also enhanced their reputation in the market. For more insights on effective business strategies for plumbers, you can visit here.

Conclusion: Taking the Next Steps

By taking these steps, you’ll position your business for long-term success. Effective pricing is not just about covering your costs; it’s about understanding your value, knowing your market, and setting prices that ensure profitability while remaining competitive.

Remember, every business is unique, and there is no one-size-fits-all approach to pricing. If you’re unsure where to start or need tailored advice, let’s work together to create a pricing strategy that’s right for your business. Your success is my priority, and I’m here to support you every step of the way.

Feel free to reach out if you have any questions or need further assistance. I’m here to help!