Signs your prices are behind
- Real job margins are lower than the margin your price book was built on.
- You gave raises, added a truck or moved shops, and prices did not move.
- Supplier invoices for your common parts are higher than the costs in your book.
- You are booked out for weeks and still not making the profit you planned.
- You close almost every estimate. A close rate near 100% often means the price is low, not that the sales process is perfect.
Step 1: Find the increase your costs require
Do not pick a number out of the air. Recalculate the cost of each task the same way you built it: standard hours times your current hourly cost (burdened labor plus overhead), plus today's parts cost. Then reprice to the margin you planned.
Example: a disposal replacement cost the shop $250 and was priced at $395, a 36.7% margin. After raises and a parts increase it now costs $270, so the same $395 is only a 31.6% margin. To get back to 36.7%: $270 / (1 - 0.367) = $426.54. Round to $429, an 8.6% increase. All numbers are examples.
Do this line by line. Some tasks will need 3%, some 12%, and a few are already fine. A single across-the-board percentage overcharges some jobs and still leaves others behind. The job pricing and markup calculator will do the margin math for each line.
Step 2: Know how many jobs you can lose and still come out ahead
Owners hold off raising prices because they fear losing work. Run the math first. If your gross margin is M and you raise prices by P, you can lose P / (M + P) of your jobs and still make the same gross profit as before.
| Your gross margin | Raise 5%: break-even job loss | Raise 10%: break-even job loss |
|---|---|---|
| 30% | 14.3% | 25.0% |
| 40% | 11.1% | 20.0% |
| 50% | 9.1% | 16.7% |
Example: at a 40% gross margin, a 5% increase only loses gross profit if you lose more than about 1 in 9 jobs because of it. And the jobs you do lose free up hours for other work. This is plain arithmetic, not a forecast of what your customers will do, so track your own close rate before and after.
Step 3: Decide when and how
- Price book first. Update every line on the same day, so phone ballparks, techs and estimates all match.
- Honor open estimates. Anything already quoted keeps its price until it expires. Put an expiration date on every estimate so that rule is clear.
- Members get notice. If you sell maintenance plans, change the plan price at renewal, not mid-term, and tell members ahead of time.
- Smaller and regular beats big and rare. A small yearly review is easier for customers to accept than a large jump after years of no change.
- Avoid the slow week. Raise prices when you are busy and close rates are solid, so a dip is easy to spot and not confused with the season.
What to say to customers
One-time customers only see the price on their estimate. The people who notice an increase are repeat customers and members. Keep it short and honest.
Letter or email to members:
"Hi Ava, thank you for being a member. Starting with your next renewal, the plan will be $X a year. Our costs for parts and for keeping trained techs on the road have gone up, and we want to keep sending the same people and the same quality. Your member discount and priority booking stay the same. If you have any questions, call us at the office."
On the phone, when a repeat customer says "It was cheaper last time":
"You're right, we updated our prices this year. Parts and labor costs went up and we didn't want to cut corners on the work. The price still includes the same warranty and cleanup. Want me to get you on the schedule?"
Do not apologize repeatedly or offer a discount before the customer asks for one. Give the reason once, restate what is included, and move to booking.
Step 4: Watch the numbers for a month
- Close rate on estimates, compared with the month before.
- Booking rate on calls where a price was given on the phone.
- Average ticket and real job margins.
- Membership renewals at the new price.
If close rate drops more than the break-even table allows, look at how prices are being presented before cutting them. Offering options often recovers the job; see good, better, best pricing.
Common mistakes
- Raising every line by the same percentage instead of by what each line needs.
- Updating the price book but not the phone script, so the office quotes old numbers.
- Changing prices on estimates already sent.
- Letting techs quietly give the old price to customers they like.
- Cutting prices back after one lost job instead of looking at a month of data.
How SWITCHBOARD handles this
When a supplier raises prices, SWITCHBOARD drafts the new costs into your Price Book for you to OK, and every estimate shows live margin against your target, so a line that has fallen behind is visible before it goes to a customer.
Questions people ask
How much should I raise my prices?
By whatever each task needs to get back to your target margin at today's costs. Recalculate line by line rather than picking one percentage for everything.
Do I have to tell customers I am raising prices?
One-time customers see the current price on their estimate. Tell members and regular commercial accounts ahead of time, and change plan prices at renewal.
How often should a contractor raise prices?
Review prices at least once a year and whenever a big cost changes, such as raises, a new truck or a supplier increase. Small regular changes are easier to accept than rare large ones.
What if I lose jobs after raising prices?
Compare the drop in close rate with the break-even table. If you are inside it, you are still ahead on gross profit. If you are outside it, check how the price is presented before lowering it.