Since business activities have been on the upswing business owners haven’t had to battle competitive price wars to the extent they have in recent years. But that doesn’t mean there is not competition. With increased sales opportunities comes increased competition and healthy competition is what holds prices in check. The mistake most owners make though is not pricing jobs too high; it’s pricing them too low!

Succeeding in business is not random. And getting your business to work for you (vs. the opposite) is a process of being intentional and on purpose about how you do things. Unless you’re an exception to the rule, you have a limited amount of time and energy, and spending either of those precious commodities on activities that do not produce profitable outcomes, is a formula for burnout and frustration. Pricing jobs for profit is no exception. However, it’s been my experience that many business owners don’t get this right and end up fighting against the overwhelming current of mistakes, misunderstandings and conflict as a result. That’s a no-win situation that leads to a multitude of issues, not the least of which is business failure.

One big question I get asked a lot is “What should my target gross profit margin be?” As I meet with business owners weekly, it’s clear that this is not a consistent number due to market dynamics and regional economics. To provide you with at least a framework for your target is not an exact science as much as it is a guess but to see a range that I think is reasonably close, click here.

To successfully price your jobs for profit involves three key components that business owners must become very familiar with:

  1. Knowing your market: there is no substitute for market awareness. You must have a general idea of what your market pays for similar projects. This data however, is neither your pricing guideline, nor fuel to fan the flames of competition. Rather, it is knowledge that savvy sales people use to frame their value proposition and set themselves apart from competitors, without even mentioning them.
  2. Break-even revenue and target gross margin percentage: a few calculations can produce these powerful numbers. They will in turn guide your pricing strategies in order to cover overhead (fixed) expenses, produce consistent profits and hit your long-term goals. Once you’ve owned these numbers you will have a clear sense of control over your destiny.
  3. A documented (and trained) estimating process and program; a process is a discipline that guides activities to consistent, positive outcomes. More importantly, a process turns skeptics into clients once they see your professionalism in action. An effective and proven estimating process produces accuracy and saves time. It also allows for speedy calculations of product upgrades and allowance tracking, which emphasizes the value you bring to the table and allows for higher profit margins in the process.

Knowing your market, your numbers and your estimating process translates to value for clients and business owners alike. There’s nothing like having the confidence of knowing that the numbers are fair on both sides of the selling equation, allowing for the gentle release of the wrong prospects from the sales pipeline before spending valuable time that could be used for the right ones.

For the consumer, there’s peace of mind dealing with someone who cares enough to clearly articulate exactly what that person will receive in return for their investment and how it will meet their needs, while demonstrating the ability to act quickly in response to changes. That’s a win-win!

To learn more about gross margin percentages, selling processes or market analysis, visit our website or call anytime. Legacy Business Leaders exists to help busy builders and remodelers win in business!

Wishing you the best in life and business,

Fred Reikowsky

Legacy Business Leaders, LLC

330.470.1300

www.yourcontractorcoach.com