Think: Is it Time to Raise Your Prices?

When was the last time you raised your prices?

If you are a union contractor, you probably raise them every year, in some fashion, when the contract renews and the labor costs go higher.

There are some years when you raise the labor rate. Other years, you raise the other “stuff” (like parts multipliers, trip charges, truck materials charges) and you don’t raise the labor rate.

Those of you who are not union contractors may not have looked at your costs (both direct and overhead) in a while to see if a price increase is justified.

Parts, Pricing, and Flat Rates

If you are on flat rate, the costs can become masked because the customer just sees one combined labor and materials price.

The astute contractor will notice it in slightly lower gross margins. On the other hand, if you don’t have or know your company’s consistent gross margin, you won’t notice the drop.

For replacement pricing, any equipment price increases could be masked through the divisors you use to determine the sales price.

You may not have compared last year’s numbers to this year’s numbers with respect to individual jobs. If you’ve achieved higher sales volume, was it due to an increased number of jobs at the same price as the previous year, or the same number of jobs as the previous year at a higher price? The increase in the number of jobs is as significant as the increase in the dollars per job.

False Security

We have been lulled into a false sense of security over the past few years.

Inflation has been relatively tame, the economy has been good, etc., and the costs have not increased much — until lately.

Gasoline prices soared and then eased a little. This is the first indication that things are not as stable as they used to be.

The Wall Street Journal recently announced a decrease in residential housing starts; this was confirmed by the National Association of Home Builders (The News, May 8) and other highly credible sources.

A few weeks ago, they an-nounced that multifamily housing starts were beginning to decline. Whether you do work in new construction or not, the housing statistics have a ripple effect into the economy and will affect your business.

By now your employees have started feeling the pinch of higher gasoline prices and may start grumbling about needing a raise.

So, do you charge more to the customers or take a smaller profit?

Fed Ex has made its statement and added a fuel surcharge.

It’s your choice. You can increase your truck materials charges on the invoices (after all, gasoline is a truck material), increase your labor rates (which are easy to compare with your competition), or increase your materials multipliers slightly to cover the additional fuel costs.

Or, you can do nothing and gripe about the increases.

On a very real note, when the cost of a loaf of bread goes up, the supermarket raises the price on that loaf of bread. Do we complain? Yes. Do we pay it? Yes — if we want to eat bread.

The analogy is that customers may gripe about an increase, but they will pay it — if you provide a quality service, fix the problem right the first time, and show the value of what you do.

Remember, you have to maintain a certain level of profitability to survive and grow the business, pay the increases in salaries that your employees want, and the bonuses that you want.