What should I charge?
This is a question we hear a lot this time of year. You’ll see it on the online forums, and here at Go iLawn / Go iPave, we sometimes get the question from customers who call in. “What Should I Charge to do…______” People will describe a bidding opportunity in great detail, then ask the world what to charge for the job.
And it’s not just newbies who are asking, it might be anyone who’s trying to get into something new or bidding on work that’s unfamiliar or outside their comfort zone.
There are usually people willing to provide an answer, especially on some of the online forums. Some are helpful and give great insights, while others only preach about professionalism and underbidding (two favorite gripes). But whenever we see people take the time to give well-meaning, sincere answers, they always include one of two things:
- A recap of the responder’s own experiences in the tone of “this is what worked for me”
- And/Or the idea we always tell customers who ask us: “It Depends”.
Why “It Depends”…
- Every job is different
- Every company is different
- It depends on the location and customer
As if all that wasn’t enough, it also depends on the time of the season, your current workload, the competitiveness of the bid, and many other factors that can change from week to week and job to job.
There’s really only one thing that doesn’t “Depend”… It MUST make sense for your company, right now.
“What should I charge?” is only a starting point for a much larger discussion. Asking someone with years of experience is little better than asking any stranger on the street, unless they also understand your company, your local market, and even your goals in business.
We boil it down to 4 things we think you can’t get away from:
- How much revenue do you need to cover the cost of doing the work? (Incremental costs)
- How much revenue do you need to cover your overhead expenses? (Fixed costs)
- How much more revenue do you need to create profit and enable growth & reinvestment?
- Where do you stand, right now, in pursuit of these goals (covering your incremental and fixed costs and creating profit?
So the next time you want to get some feedback on your pricing, don’t focus all your thought on what somebody else would do or think only of ‘winning’ the work. Instead apply a couple of tests that can help you decide if it does make sense for you at this time.
Your work needs to produce a sustainable profit.
This seems obvious. Yet I bet every one of us has, without intending to, done work at a loss.
One thing you can do to avoid this is to try Cost Plus Pricing – At its basis, this is just the idea that you can calculate your charge for a job directly from what it costs you to perform the work. For more details on cost plus pricing, Click Here.
Your “real” costs to perform Landscaping, Asphalt Maintenance, Lawn Care or Snow Removal may be harder to predict than the costs of running a factory. But if you can understand and predict your costs accurately (and work consistently), you can simply add a percentage to every job cost and ensure a sustainable profit.
What’s that percentage???? It Depends!
We’ve met small timers who claim they get their costs plus 50%, but I doubt they really understand their costs. You might see companies trying to get cost plus 25-30%, or you might see big operations charging cost plus as little as 7-8% and still making millions on scale.
If it isn’t profitable now, you’d better have a very good reason for doing it anyway:
There are strategic reasons why you might do a job for break-even rates, or even at a loss… things like
- Building new customer relationships
- Addressing all a customer’s needs, to keep everything ‘in-house’
- Providing work for otherwise idle crews to prevent loss of workforce
- Even philanthropy
Ask what you need? – How important is that customer? How bad do you need revenue? How bad do you need work for yourself or your crew(s)?
Make decisions with your eyes open. Sometimes you might take less-desirable jobs, but you need to know that going in.
And the basis of not “accidentally” doing work at a loss is knowing what it’ll cost you to do the job.
What to Charge –
In the end, you need to charge, on average, enough to create a sustainable profit margin after meeting all your financial obligations.
You might choose for strategic reasons to accept some work that doesn’t make you money. But you should only do this if it makes you, on average, better able to make money long term.
So your pricing strategy for any job should be consistent with the overall needs of your company “Right Now” at this time and place. And that’s why there’s never a really simple answer to the question of “What should I charge?”
Leave a ReplyWant to join the discussion?
Feel free to contribute!