Pricing Your Services: Why Most Contractors Leave 30% of Their Profits on the Table
If there's one thing most contractors hate more than paperwork, it's setting prices.
"What's your hourly rate?" "How much to install this fixture?" "Can you give me a ballpark for this project?"
These questions can make even veteran tradespeople break into a cold sweat. Why? Because most of us were taught how to do quality work—not how to price it properly.
Let's get real about contractor pricing and why so many skilled tradespeople are working harder than they need to for less money than they deserve.
The Three Deadly Pricing Mistakes
After talking with hundreds of contractors across different trades, I've noticed the same pricing errors appearing over and over:
Mistake #1: Cost-Plus Pricing Based on "What Others Charge"
"I heard the going rate is $75 an hour for plumbers in this area, so that's what I charge."
Sound familiar? This approach is like driving with a blindfold on. You have no idea:
- If your costs are the same as other contractors
- If your efficiency level matches theirs
- If your target customer values the same things
What happens? You end up competing solely on price against people who might have completely different business structures.
Mistake #2: Failing to Price in "Invisible Work"
Many contractors only price the "wrench time" or "hammer time" they spend on a job. They completely ignore:
- Initial consultations and estimates
- Travel time and fuel
- Material sourcing and pickup
- Client communication and follow-up
- Warranty support and callbacks
- Administrative time for invoicing
When you fail to account for these hours, you're essentially working part of every job for free.
Mistake #3: One-Size-Fits-All Pricing
"I charge the same for every customer because that's fair."
This well-intentioned approach actually costs you thousands. Here's why:
- Some jobs are logistically easier (ground floor vs. third floor)
- Some customers are easier to work with (decisive vs. indecisive)
- Some neighborhoods have different price sensitivities
- Some seasons have different demand levels
Using identical pricing across all these variables means you're leaving money on the table with some customers while pricing yourself out with others.
The Profitable Alternative: Value-Based Pricing
The contractors who consistently earn 25-40% more than their peers aren't necessarily better at their trade—they just understand a simple truth: customers don't buy hours of labor or materials. They buy outcomes and peace of mind.
Here's how to implement value-based pricing in your business:
Step 1: Understand Your Full Costs
Before you can set profitable prices, you need to know your actual costs. This means tracking:
- Direct labor (including your time at a fair market rate)
- Materials and supplies (including waste factor)
- Travel and fuel
- Equipment usage and depreciation
- Overhead (insurance, tools, office expenses, etc.)
- Administrative time
Real-world example: A plumber who thought he was profitable at $85/hour did the math and discovered his true break-even rate was $67/hour. This meant he was only making $18/hour in profit—less than his lead technician was earning!
Step 2: Segment Your Services and Customers
Not all work is created equal. Smart contractors create different pricing tiers based on:
Service Complexity:
- Basic service calls
- Standard installations
- Complex or custom projects
- Emergency/after-hours work
Customer Type:
- One-time residential
- Repeat residential
- Property managers
- Commercial clients
- General contractors
Each of these combinations deserves its own pricing structure based on the value delivered and the customer's willingness to pay.
Step 3: Price the Outcome, Not the Hours
This is where the magic happens. Instead of saying "I charge $X per hour," shift to outcome-based language:
Instead of: "My rate is $95/hour, and this will take about 4 hours."
Try: "I can have your bathroom fully functional again by tomorrow afternoon for $495. That includes all parts, labor, and cleanup, plus our 2-year workmanship warranty."
Notice the difference? You've shifted the conversation from "how much time are you billing me for?" to "what result will I get and by when?"
Step 4: Offer Good/Better/Best Options
One of the simplest ways to increase your average job value is to present multiple options.
Example for a Painter:
- Good: Basic repaint with standard paint ($2,800)
- Better: Premium paint with additional prep work ($3,600)
- Best: Premium paint, extensive prep, and additional accent wall ($4,400)
According to data from hundreds of contractors, simply offering options increases the average sale by 15-20%, as roughly 70% of customers choose either the middle or high option.
Real-World Results: The 30% Profit Increase
Let me share a quick case study of how this works in practice:
Mike ran a small HVAC company charging the "going rate" of $85/hour plus parts markup. His average service call brought in $280, and he completed about 120 calls monthly across his three-person team.
After implementing value-based pricing with good/better/best options, his average ticket jumped to $370 (a 32% increase). His customer satisfaction actually improved because people felt they had choices and control.
The kicker? His costs stayed essentially the same, meaning almost all of that increase went straight to his bottom line.
How to Start Implementing This Today
If you're convinced but unsure where to begin, here's a simple three-step process:
- Track your actual costs for two weeks Document every minute spent on jobs, including travel, shopping, and paperwork. You'll probably be shocked.
- Create packages for your most common services Start with just 2-3 options for your most frequently requested work.
- Test your new pricing with new customers first This lets you work out the kinks before rolling it out to your entire business.
The Bottom Line
Most contractors set their prices based on what others charge, what they've always charged, or worse—what they think customers expect to pay.
The result? Thousands of dollars in lost profit every month despite working the same hours with the same skills.
By shifting to value-based pricing, you can work the same amount (or less) while significantly increasing your profit margins. Your customers get more clarity and better options, and you get paid what you're actually worth.
Isn't that why you got into business in the first place?
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