Have a customer that i have not raised peices for in 3 years. I keep 6-10 electricians busy there year round. Profit margin has dropped this year so I am increasing prices. Since its been three years I am increasing by 3% per year. Total of 9%. My accountant says I should raise prices each year because costs increase each year. What do you guys think? This is the first year my profits have dropped, and its by about 6%.
Rate Increase
- Thread starter DAWGS
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kkwong
Senior Member
- Location
- Sac, CA (I think)
I seem to remember my friend complaining about the cost of material and gas. I think what he ended up doing was to raise prices every year by some number his accountant came up with. I think he called the increase a "materials" increase, but I might be wrong.
petersonra
Senior Member
- Location
- Northern illinois
- Occupation
- engineer
Forget what your costs or your profit is. I think you should charge what the market will bear. There is no magic pricing formula.
bkludecke
Senior Member
- Location
- Big Bear Lake, CA
- Occupation
- Retired Electrical Contractor
petersonra said:
Actually I pretty much agree with that statement. There are times when if I don't price labor at near break even then I can't get work (the bad times), and then there are times like now when I can pretty much charge what I want and make it up (the good times).
Like it or not, around here at least, the marketplace has a lot to say about what I charge. All the fancy formulas and business plans aren't worth much when then the market takes a dive and the handymen come out of the woodwork & work for cheap.
The best protection for this that I have found is to find some niches where there is less competition. My costs are higher than most, my work is better than most, and my cusomers' expectations are higher than most so we get by OK.
DAWGS said:
The Idea is not to keep your men busy, put rather keep them productive, this is where good business planning knowledge comes in, well planned jobs that produce a study profit.
I read so many posts, where it appears the owners, are running by seat of the pants, rather then planning for success. Many posters try to guide them with solid business experience, yet they choose to take advice from some that have little or none business experience.
Follow solid business practices, and the change in the market contitions, will usually not affect your bottom line, in a severe way.
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Rewire
Senior Member
- Location
- Lake of the Ozarks
It is much easier to sell productivity,I picked up a customer because the former contractor was sending a crew out just to keep them "busy" well a bean counter noticed this and suggested doing most of the "busy" work in house well the old contractor tried to bully them buy saying he wouldn't do any of their more difficult work well this did not work out as he had planned and a phone call later and we are now their go to electrician.satcom said:
dbuckley
Senior Member
- Location
- Canterbury, New Zealand
Be aware though that determining accurately what the market will bear may mean losing the job. The only real way to find out what the customer is willing to pay is to gradually raise prices till he blinks and fires you. Then you know what his upper limit was. But by then, its all a bit late...
Also; if you add 9% now thats a lot tougher pill to swallow than 3% per annum over three years would have been. Financially, maybe he's may be on a winner, depending on how his business works, but it wont feel that way to him.
Also; if you add 9% now thats a lot tougher pill to swallow than 3% per annum over three years would have been. Financially, maybe he's may be on a winner, depending on how his business works, but it wont feel that way to him.
growler
Senior Member
- Location
- Atlanta,GA
satcom said:
Are you saying that we should move to Mexico and then to China?
ITO said:
it's rare to find a contractor that has to raise his rates to meet "what the market will bear" or the "going rate"
charge what you need to charge...if they won't pay that much, then at least you aren't losing money.
If you happen to be low (but covering all your costs and making a profit, so be it... you make your profit and they love you.
andinator
Senior Member
- Location
- Lilburn Georgia
I just got Alan Greenspans autobiography....He will explain it all to you, get the book.
ITO said:
the key being the mythical "going rate" or "what the market will bear"
i agree with lots of contractors needing to raise their rates....but very few who are below the current "going rate"
does that make any sense?
it's not about what any market will bear, it's about what any particular customer will bear. There is really no way to know this, until you charge more than they will bear.
I made the mistake of not raising the rates each year, now 3 years later i am trying to make up for it. but 9% may be hard for them to swallow. We are still making good profit, but it has went down. Employees get raises, comp goes up, medical increases each year, my prices also need to.
LawnGuyLandSparky
Senior Member
DAWGS said:
Explain this in your notification. "Due to the ever rising costs of doing business, fuel, insurance, compensation, utilities, etc,,, the following is a new rate schedule." Don't indicate the actual % of increases.
Most of my work is hard bid, so finding the market price is not all that hard. There is nothing quite like finding out you left $100,000 (or more) on the table, it makes you pay attention to what the market is, and your bids.
I just don't subscribe to the Walmart mentality of passing the savings on to the customer while I beat my suppliers up, and cut every corner that can be cut. When the market it good, I make money, when its bad, I get by without massive layoffs, while we do what we have to do to keep the doors open.
There are also those jobs that just turn out to be stinkers, you have to make good money on the winners to make up for the losers, and you don't do that by low-balling bids in a well intended effort to be "fair".
I just don't subscribe to the Walmart mentality of passing the savings on to the customer while I beat my suppliers up, and cut every corner that can be cut. When the market it good, I make money, when its bad, I get by without massive layoffs, while we do what we have to do to keep the doors open.
There are also those jobs that just turn out to be stinkers, you have to make good money on the winners to make up for the losers, and you don't do that by low-balling bids in a well intended effort to be "fair".
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ITO,
you and I actually agree on this...hell read any of my posts and you'll know I'm not the Wal-Mart mentality. The difference is our perspective. You are coming from the hard bid, apples to apples, what was their price market. I am coming from the service, no real bids, apples to oranges, won't know it's too much until you see another companies truck in front of your customers building.
My point is that from a service perspective, I don't care what the "market will bear", I care only about what my customer will bear. I also only care if they are willing to bear what I need to charge. If I need $100/hr and they will only bear $90/hr, they are not the right customer for me. If they will bear $110/hr, and I charge them $100...then everyone is happy. I make my rate, they spend less than budgeted...all is good.
I'm not talking about bidding 5 Best Buys that are all almost identical...with the knowledge that the last 3 (that were also almost identical ) went for $250-$260K electrical...and trying to do it for $200K just to get the job.
Apples and oranges.
you and I actually agree on this...hell read any of my posts and you'll know I'm not the Wal-Mart mentality. The difference is our perspective. You are coming from the hard bid, apples to apples, what was their price market. I am coming from the service, no real bids, apples to oranges, won't know it's too much until you see another companies truck in front of your customers building.
My point is that from a service perspective, I don't care what the "market will bear", I care only about what my customer will bear. I also only care if they are willing to bear what I need to charge. If I need $100/hr and they will only bear $90/hr, they are not the right customer for me. If they will bear $110/hr, and I charge them $100...then everyone is happy. I make my rate, they spend less than budgeted...all is good.
I'm not talking about bidding 5 Best Buys that are all almost identical...with the knowledge that the last 3 (that were also almost identical ) went for $250-$260K electrical...and trying to do it for $200K just to get the job.
Apples and oranges.
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