486: Are You Charging Enough? Why You Should Raise Your Prices

This Podcast Is Episode Number 486, And It's About Are You Charging Enough? Why You Should Raise Your Prices

There comes a time for every small business to raise its prices. While it may seem scary, remember that it's your job to keep costs fair for you and your customers. That means you have to charge prices that work for you and allow you to remain in business. 

Am I Not Charging Enough?

Knowledge leads to profits and cash flow. What makes knowledge powerful? Use of knowledge. In this cutthroat construction industry, you may not be able to outgrow your competition forever, but you can always outlearn them.

Knowing The 80/20 Rule For Construction Contractors will surely help:

20% of your customers typically generate 80% of your net profit  20% of the goods or services you sell contribute 80% of your revenue 20% or 2 out of 10 of your staff create 80% of the value for your customers

The frightening consequence of the 80/20 rule is that 8 out of 10 hours we spend at work drive almost no value to the bottom line, and the most significant drain is trying to save money doing our contractor bookkeeping instead of reviewing the Key Performance Indicator (KPI) Reports. 

The essential value good bookkeeping brings to a business is an understanding of where your 20% is hidden. 

By generating daily reports that uncover the best clients, jobs, services, or products, you will soon see how you can refocus your internal efforts on doing more good work.

You could be asking the same question and still looking for reasons why you should raise your prices:

1. Your costs have grown

The thing about inflation is that everyone will feel the pinch – including you. If your construction business supplies are now more costly, you must pass those costs on. Otherwise, you're losing money, and your business will be on the hook. 

Nobody likes raising prices on their customers, but it's a necessity. You have to be able to cover your costs and continue supplying your customers with what they expect.

2. You're too busy

If you find that you're consistently booked 10-14 days out, it's a sign that you're delivering good value for money. People know your worth and are fighting for your time. That's great! But it also means that your service-based business has evolved.

This tells you that your customers are satisfied. And if they're happy, they'll likely spend more on your services. You may lose some clients in the process, and that's okay. You're now attracting higher-quality clients who know your value and are glad to pay more.

Beware of getting carried away, however. If you raise your prices by too much too fast, without adding any value, you'll find yourself in trouble. As your skills improve, you'll automatically provide more value for money. This is when raising your prices is justified and will be met with acceptance.

3. Enough time has passed

Even without adding more value or skills, raising your prices is okay. It's recommended. A good general rule of thumb is to increase your costs by 5-10% every year and a half or so.

This may sound like a lot, but consider that the average inflation rate falls within this bracket. If you don't raise your rates and the cost of your supplies hasn't gone down, you're losing money.

4. Your competitors are doing it

Yes, it feels great to offer your customers a fantastic deal. But don't be the one left with rock bottom prices when your peers have all raised theirs. This translates into you working harder to earn the same amount of money.

Be aware of what's going on in your industry and adjust. Customers judge a business based on perceived value. If you're at the bottom of the pack price-wise, they're likely to skip over you to get a good deal. Price yourself accordingly to attract quality clients.

5. You've become more valuable

You gain more skills, experience, and knowledge as you work in your field. This translates to more value. If your business is better than it was a year ago, it's time to charge accordingly.

Don't undervalue yourself. Customers often understand that you're more skillful and are glad to pay for your extra expertise.

6. You're trying to rebrand or reposition your service

There may come a time when you want to attract more high-quality, higher-paying clients.

This rebranding is meant to raise the perceived value and the prices along with it. One of the most prominent examples where you see this is in the restaurant industry. As a place becomes more sought after, you'll notice that they change the menu to make the descriptions more detailed. Maybe a popular item will change its name to make it sound fancier. But one thing's certain – the price tag will have gone up.

Final thoughts

There are many reasons why raising your prices is a good idea. It's just good business sense. Likely you're experiencing a combination of the reasons listed above. Whatever the case, ensure you do your research and review your prices often to make sure you position your business correctly.

As contractors like you move away from gut-level decisions and begin relying on their construction accounting systems to provide valuable financial and job costing reports, it's time you open a treasure chest busting at the seams with helpful information which can lead you to earn massive profits and by extension increase your wealth exponentially. Now, the power lies within you and what you can do with your knowledge. 

About The Author:

Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com