How to Confidently Raise Your Hourly Rates

Nearly everyone in the trade industry cringes a bit when it comes time to raise his or her hourly rate. Is the new rate too high? Will it be too far above our competition’s rate? Will our customers leave us? Is it really OK for me, the owner, to make more money? Besides, is raising my rate really fair to our customers?

These are the kinds of questions that often go through the minds of most company owners as they go through the mental gymnastics of whether to raise their hourly rate. The fear factor of raising our rates — even when completely justified — is huge.

The Corporate Strategy

Has your insurance agent ever called you with fear and trembling to ask if it was OK to increase the cost of your policy? No, of course not. They simply sent you the bill with the new rate and didn’t think twice about it. The new, higher-priced invoice was simply sent to you, and you had to pay it — like it or not!

What about McDonald’s? When was the last time McDonald’s took a customer survey to see if it was OK to raise the price of a Big Mac by 50 cents? Right, they never asked. Why didn’t they ask? The answer is simple. They run a profit and loss statement every month on every product they serve. When the profit margin begins to slip on the Big Mac, what happens? The price goes up. If they didn’t raise the price of the Big Mac, profits would begin to fall, and stockholders would be yelling. If the rising costs were not passed on to their customers, profit would not only fall, but eventually, they would also lose money and go out of business. That is not a good situation for McDonald’s or their customers.

Hello, is anyone listening? Your costs of doing business went up. Raising your pricing is not — I repeat — is not an option. It’s a necessity!

McDonald’s has total confidence in their product. They know they have a great product, and they know customers will pay the price — whatever it may be — when they come through the drive-thru. The customer doesn’t drive to McDonald’s because they have the lowest-priced burger in town. They come to McDonald’s because they love their product — in this case, the Big Mac. The price goes up, the customer pays the new price, and McDonald’s maintains their profitability. The principle seems simple enough, but most trade company owners still struggle when it comes time to raise their pricing. This article is designed to help readers overcome the fear factor of raising their rates.

Don’t Be the Mule

 Do you remember the old story about the mule and the two-by-four? The mule had to be hit with the two-by-four to get its attention before it would respond to a command. Well, fellow contractors, consider yourselves having just been hit with a two-by-four. Your costs are going up, and your pricing needs to at least cover the increase, if not exceed it.

Now, some of you could be thinking, “Gee, Tom, I can’t raise my rates even through I am now totally convinced it is costing me money. If I do, my rates will be higher than most of my competition. My customers won’t pay it, and besides, I really don’t think I am worth what I will be charging.”

Hello, is anyone listening? Your costs of doing business went up. Raising your pricing is not — I repeat — is not an option. It’s a necessity!

The Three Keys

Today’s customer is looking for three things. First, they want quality work done. If you have seen the results of the studies, you will quickly notice that 80 percent of the population still wants quality work done. The other 20 percent are price shoppers and are not your customers. I repeat — price shoppers are not your customers. The contractor who wins the bid war with the price shopper actually loses. You get the job, and not only can you not make money on it, but it keeps you from doing other profitable work.

The next thing the customer wants is for you to do what you said you would do. You have described the repair, remodel or installation of the pond. Just do what you said you were going to do.

The third thing the customer wants is for you to want you to do what you said you would do when you said you would do it. If there is one common complaint among customers in every trade across the country, it is the fact that contractors do not show up when they say they will be there. If you told the customer you were going to start on the new pond Thursday morning, be there. If you told the customer you would be at their home to make the repair between 10 a.m. and noon, be there. If you must change the time, that’s fine, but call the customer and communicate with them ahead of time.

I have found a rather startling reality over the years. When a contractor does quality work, does what they said they would do and shows up on time, price is not even on the Top 10 list of considerations. That’s right — if you consistently do these three things, price fades from being one of the determining factors in having your company do the work!

Find & Charge Your Rate

Remember that the fear factor of raising your rates is not on the part of the customer. It is on the part of your company.

Fear is a very powerful thing. It tends to paralyze us in the sense that when we are afraid of anything, we tend to do nothing. When it comes to running a business, doing nothing or failing to make necessary changes can literally put the company out of business.

Do the math, find out what you really need to charge per hour and recalculate your rate at least twice a year. Once you find out what you need to charge, charge it! Don’t be afraid. Remember, improper labor pricing is the No. 1 killer of trade companies today. Charge what you need to charge in order to cover costs and generate a reasonable profit. You will be glad you did!

No comments yet.

Leave a Reply