Are you pricing to win work, or you are pricing to make money?
I am going to kick off with a quick story.
I met a guy yesterday, a young guy just starting out in business.
He has been in business for 6-12 months and he was telling me about his pricing strategy.
Now this stuff will make your hair curl.
The gross profit margins he was achieving (he didn’t know what his gross profit margins were) but when we figured it out, they were around 18-20% and his charge-out rate was $55 an hour.
He’s an electrician and he had just put it up to $60 an hour and thought he was on to a winning deal.
Now the sad reality is he learned this pricing strategy from his old boss.
The guy who he did his time with and he was actually doing the pricing for that guy before he went out in business.
Now I am going to tell you straight up.
If that is the way you are pricing, you are not going to make money, you are going to struggle to have cash in the bank to meet your obligations and you are certainly not going to have money to spend on yourself, your family and to grow your business.
So, the question is this, Are you actually pricing to win work?
Or, are you pricing to actually make a profit?
Now if you are pricing to win work, the mindset or the psychology mostly is, “Hey, I need to get this job, I’ll sharpen my pencil just to make sure that I keep everyone busy.”
Unfortunately, that is just not going to get you to where you want to go.
You need to understand what are the key benchmarks or targets for your gross profit margins that you need to hit to make a solid profit.
Now we teach the members of our program what these benchmarks are and they vary depending on what type of work you are doing.
So if you are into the maintenance and servicing work, it is going to be a lot higher than it is for say large commercial jobs because there is a lot more size in those jobs.
Now, the way this works is incredibly powerful and a quick story about Graham and Sue from Swift Fix Plumbing.
So when they joined the program, their gross margins were around 32%.
By understanding what the right benchmarks are for their type of work, and back costing all their jobs, they’ve got that up to 45-50%.
They have increased their sales by $33k a month over the last three months, just by pricing properly.
And you can do the same.
I’ve got a free pricing calculator you can download here.
It will show you the benchmarks that you should be hitting in your Plumbing, Electrical or similar business and how to get the right gross profit margin.
I think you will find it super helpful.
So let’s look to raise the bar across the industry for everyone, and get those benchmark margins up.
Let’s make some proper money, have a bit more fun investing in our businesses, and take them to the next level.
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