How To Get Your Prices Right (A Guide For Heating Businesses)

by | Jun 27, 2024 | Doing Work, Growing the Business, Management Skills, Workflow & Getting Paid

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    Rushing from job to job but not making as much as you’d like? Calendar overflowing with work but no spare income to hire some help? Feeling unmotivated to do your best work?

    These are just a few of the signs that you’re not charging enough

    Pricing can be deceptively simple. Nothing will stop you from pulling a number out of thin air, but a well-thought-out pricing strategy is core to the success of your business.

    Getting started is always the toughest part, so we invited Dan Voice on our podcast to share some knowledge, tips, and advice. With over 20 years of experience running Prime Fusion, Dan’s got his pricing down to an art. Keep reading for a summary to getting your prices right.

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    Step #1: Work out your costs & know your numbers

    The first step to any pricing strategy is to make sure you understand your costs. As a heating & plumbing business, you’ve got a fair few to cover including but not limited to:

    You should also think about your preempted costs. This could be a new van, a replacement set of tools, or training courses.

    Most of these costs are thought of as a yearly or monthly cost, which is a bit problematic for a clear pricing strategy. “I start with all my costs and then divide them up by 200 – or the number of working days in the year. There’s no sense in costing your business over 365 days… It fundamentally won’t work – not unless you work 365 days,” explains Dan. 

    Key business numbers also play a role in this. You’ll need to know (and regularly keep an eye on) your profit so that you can factor in business tax and VAT as an expense. 

    “There’s no sense in costing your business over 365 daysIt fundamentally won’t work.”

    Step #2: How much money do you need & want to make?

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    Adding your rent, bills, food, and other essential living expenses to your business costs gives you your survival rate – the bare minimum you need to stay afloat.

    From here, you need to decide how much you want to make. You could base this on how much you want to put into savings and keep as disposable income, or you could take Dan’s route: “When I first started out I started with a ballpark figure which was probably about 10 grand more than when I was employed.”

    “You’ve got to get a benefit for all your work… you’ve got to be doubling your salary (if not more). There’s lots more involved [in running a business].”

    Step #3: Decide how you’re going to price

    Generally speaking, you’ll either charge on an hourly basis or per job. The most common and effective way to do this in the trades is how Dan does it. This is known as cost-plus pricing.

    Pricing for small jobs

    Hourly rates help gauge how much a job is worth, but it’s not the best way to price small jobs: “We scupper ourselves on an hourly rate because we can do things in 10 minutes in the customer’s eye,” explains Dan. What your customers don’t see is the time it took you to get there, fuel costs, admin & paperwork, potential callbacks, and, most importantly, the experience required to be able to do it in 10 minutes in the first place.

    Two easy solutions to this are charging fixed rates or implementing a minimum charge to cover overheads.

    Pricing for big jobs

    Estimating how long a big job will take is challenging. Even those who’ve been in the industry for decades can get it wrong.

    Dan’s advice here is to break down the job into each individual component. This will help you set a fair and reasonable price which you can go at a comfortable pace and do your best work.

    Picture a situation where you quoted for a full day’s work but end up having to come back the next morning to finish things off. Dan openly shares that he’s done this himself: “As soon as you go into the next half a day, you’re crying because you wouldn’t want to be there.”

    Step #4: Use all of this information to decide on some reasonable prices 

    With your properly-costed hourly rate in mind, you can see how much you need to be charging – remembering to account for behind-the-scenes work for smaller jobs with fewer ‘billable hours’.

    You might then start to compare your prices to your competitors. For Dan, this is one of the biggest pricing traps for tradespeople and you should always stick to your worth – within reason, of course: “If you need to be charging x amount of pounds and it’s way above the national average or even the local average, then you’ve got to do two things: look at your overheads, and look at your wage expectations – and tidy them up. But don’t be the cheapest fool in the village!” says Dan.

    Working with effective job management software designed for the heating & plumbing industry will also help you save hours each week and cut down your costs.

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    Step #5: Stick to your prices and know your worth

    A properly costed and priced business is the most reliable road to success. Lowering prices to get more work may be tempting, but it will make your life much harder in the long run. “If you don’t know your own worth…you set yourself up for failure from day 1,” says Dan. 

    Besides, you don’t always lose a job because of prices and lowering them isn’t always the way to get more work. “For all you know, you might not have been getting that job from day one,” Dan jokes. 

    At the end of the day, if you’re making no money on a job, you’ll always be in a rush. Dan’s advice is simple: “Charge slightly more, trust your services, and trust your worth.” Everyone makes mistakes and, if there’s no money in a job, there’s little incentive to go back and fix it.

    The dangers of underpricing & vicious cycle

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    If you charge enough to do your best work, customers will keep coming back. In Dan’s case, about 90% of his work is done for existing customers – which is a much more lucrative and less stressful way to run your business. Learn more about that here. 

    “If someone’s after a cheap job, then they’re not for you. There’s an endless stream of work out there. Don’t get scared when the phone isn’t ringing,” he says. There’s also plenty of tried-and-tested marketing tactics you can use to get good customers

    “The reason why cheap jobs go wrong and you feel like you aren’t getting anywhere is because you are not earning enough money so you’re rushing stuff. You’re stressed, you’re not gonna get return customers. Cheap will fundamentally cost you in the long run.” Undervaluing your work can lead you down a vicious cycle that can be hard to get out of, but the good news is that it’s easily avoided.

    Should friends & family get special prices?

    A lot of business owners struggle to say no to friends and family asking for special prices. Turning the question around makes it much easier: “A friend who will pay a complete stranger a full price but won’t pay their friend a full price for helping them out and doing a lovely job? I think bad friend, personally.”

    There may be certain situations where you want to help out a friend or family member in need. But under normal circumstances, why wouldn’t your friend or family want to support your business? 

    “You could say to them, look, you buy the boiler. I think that’s as far as you should be going,” Dan adds.

    Some final words from Dan

    Why devalue a trade?…You should win on being an absolute awesome engineer.”

    Pricing all comes down to one thing: making money. “Don’t be scared of making money. You’ve got to make loads of money…because that’s how business works.”

    Your job is to simply find the balance between living comfortably, charging a fair price, and giving yourself enough time to do a good job. “You can’t do those things when you’re taking chickenfeed,” says Dan.

    “If it’s costing you that much to live that reasonable lifestyle, it’s probably costing your competition that as well,” he adds. “Why devalue a trade just to get the one-upmanship to try and win that customer. You should win on being an absolute awesome engineer.”

    Find out why Dan and more than 5000 other heating & plumbing businesses use Gas Engineer Software to manage jobs.

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    Connect your Gas Engineer Software account to Crezco for simple, fast payments

    Late payers are a consistent problem in the trades. Not only do you get an unpredictable cash flow, but you’ve got to spend hours working out who hasn’t paid and then chasing them up. 

    Gas Engineer Software can handle this whole process for you. Our integration with Crezco means your customers can pay you instantly without hefty fees using a convenient QR code or link.

    For the remaining late payers, our software sends them an automated payment reminder nudging them along. 

     

    Next steps:

    If you’ve been thinking about implementing software into your workflow to save time, here’s what you can do next: