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Business Advice

How To Price Tradie Services Correctly?

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Getting your pricing strategy right is vital to your success as a tradie business owner. If you don’t price correctly, you risk losing business to your competition or being left out of pocket.

To be a profitable business, you must make enough to cover all your outgoing expenses. It’s good to relook at these figures regularly, monthly or quarterly, to keep up with the changing economic climate.

Key figures you need to know:

Direct costs – this is specific to each job, how much labour, time and materials are required

Sales revenue – how much you charge a customer for the said job

Gross profit – once you’ve subtracted the direct costs from your revenue, this is your gross profit

Overheads – these are the ongoing expenses that keep your business alive, such as rent, insurance, licensing, loan repayments, equipment servicing, etc

Net profit – this is how much you end up with once you’ve covered overheads and the key figure you need to know

A common mistake is only considering the cost of the job in your pricing. This leaves you with overhead costs that may not be covered or will significantly affect your net profit.

Furthermore, the value of the job is not just the costs either; it’s the payment for your experience and expertise and the quality of service.

Profit margin vs Markup

Two key indicators to assist in pricing are your profit margin and markup. They use the same inputs and analyse the transaction but show different information.

Profit Margin is the percentage difference between the sales price and the gross profit. In other words, revenue minus the cost of goods. This can determine how much profit you want to make and allows you to choose which market you sit in.

Target pricing is a method used to calculate the selling price based on market prices or your competitors. First, you compare the prices of those services similar to yours and then what quality standard you want to produce. Once you have the value of the job, you can choose how much of a profit you make from it, a.k .a. your profit margin.

If you want to earn a higher profit margin, displaying previously completed jobs can show your clients the quality provided and what makes you worthy of a higher margin.

A standard suggestion is to limit your overheads to around 25-30% of your sales revenue to ensure you have at least a 10% net profit by the end. This means you should add at least 35-40% on top of your cost of sales.

Markup is how much the cost of your product or service has increased to get to the selling price. It is usually shown as a decimal point. Your markup percentage can impact your job rate as you could do many of the same jobs but at a low markup or have less frequent jobs of higher rates.

As the costs of materials and labour increase, ensuring you are pricing correctly is more important now than ever.

We can give you all the tips and know-how to make a good margin on jobs and achieve optimum profitability. Contact us today to discuss your pricing strategy at 1300 886 006 or email one of our offices.

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